The 257-167 vote just after 11 p.m. yesterday capped a tension-filled final push as Republicans balked at a bipartisan Senate bill. House Speaker John Boehner ordered a vote even though 151 of 236 Republicans, including Majority Leader Eric Cantor, ultimately voted no. Obama said he’d sign it into law.
“The deficit needs to be reduced in a way that’s balanced,” Obama said at the White House. He said top earners and corporations should pay even more and that Congress must raise the debt ceiling. “Everyone pays their fair share. Everyone does their part,” he said.
The final days of drama surrounding the so-called fiscal cliff of scheduled tax increases and spending cuts illustrated the partisan struggle that has made U.S. budget policy unpredictable and prone to crises as deadlines approach. Obama wielded the leverage he gained in his Nov. 6 re-election. Still, he fell short of reaching with Republicans a larger deficit- reduction grand bargain.
Republicans immediately turned to their next battle -- a bid to use the need to raise the nation’s $16.4 trillion debt ceiling to force Obama to accept cuts in entitlement programs such as Medicare. Congress must act as early as mid-February to prevent a default and the dispute may reprise a similar 2011 episode that led to a downgrade of the U.S. credit rating.
“Without meaningful reform of entitlements, real spending controls, and a fairer, cleaner tax code, our debt will continue to grow, and our economy will continue to stumble,” Boehner said in a statement after the vote.
Obama said he’s “very open to compromise.” Medicare spending can be reduced, he said, yet “we can’t simply cut our way to prosperity.”
Futures on the Standard & Poor’s 500 Index expiring in March added 1.6 percent to 1,442.4 at 7:23 a.m. in New York. The equity benchmark surged 1.7 percent on Dec. 31, the biggest rally on the final day of a year since 1974, as Republican and Democratic lawmakers made last-minute concessions to finalize the deal. Dow Jones Industrial Average futures soared 168 points, or 1.3 percent, to 13,200 at 7:23 a.m. The benchmark 10- year yield for Treasury bonds rose seven basis points, or 0.07 percentage points, to 1.83 percent at 7:33 a.m. in New York.
The largest economic impact of the budget accord will come from ending a two-percentage-point payroll tax cut, a move that will shrink paychecks for U.S. workers immediately even as most income tax cuts that expired Dec. 31 are being extended permanently.
The payroll cut’s lapse will pull more than $100 billion out of the economy in 2013 and is the primary reason why 77.1 percent of U.S. households will face higher taxes this year, according to the nonpartisan Tax Policy Center in Washington.
The Republican-controlled House yesterday almost unraveled a bipartisan agreement brokered over the waning days of 2012 by Vice President Joe Biden and Mitch McConnell of Kentucky, the Senate Republican leader. The Senate passed that bill 89-8 in the first hours of Jan. 1. In last night’s House vote, 85 Republicans and 172 Democrats voted for the measure, while 16 Democrats and 151 Republicans opposed it.
Compared with continuing 2012 policies, the agreement would increase taxes by $620 billion over the next decade, according to the White House. The federal budget will be $4 trillion bigger than projected had all the scheduled tax boosts been retained.
Republicans claimed a victory because the bill ends the temporary nature of most of the tax cuts that President George W. Bush campaigned on in 2000 and were scheduled to lapse at the end of 2010 and then again in 2012.
“We’re making permanent tax policies Republicans originally crafted,” said Representative Dave Camp, a Michigan Republican and the chairman of the tax-writing Ways and Means Committee.
In addition to tax increases on top earners, the bill extends expanded unemployment benefits and continues refundable tax credits for low-income families and college students. It would also delay by two months automatic cuts scheduled to start this month, offsetting the $24 billion cost with a blend of additional revenue and spending reductions, half of which would come from defense.