U.S. House and Senate Pass Legislation to Avoid Going Over the “Fiscal Cliff”

In the early hours of January 1, 2013, the U.S. Senate voted, by a margin of 89 – 9, to support legislation which addresses a number of budgetary issues and concerns in our going over the “fiscal cliff”. More than 20 hours later, the U.S. House voted, by a margin of 257 to 167, to support the same bill, thus clearing it for President Obama’s signature. The President has indicated that he will sign the bill, and thus the nation did not go over the “fiscal cliff”, and though a number of issues were decided by this bill, a number of important matters still remain to be determined.

Specifically, the bill which did pass extends for 5 years the current expansion of tax breaks for low-income Americans, including the earned-income tax credit, the child tax credit, and the American Opportunity Tax Credit; families making more than $450,000 or individuals making more than $400,000 per year will pay the same tax rates they paid in the 1990’s; families (or individuals) making below that amount will not see any change in their tax rate; itemized deductions will be capped for individuals making $250,000 and for married couples making $300,000; taxes on inherited estates will go up to 40% from 35%, and the “payroll tax holiday,” which was instituted in 2011, will expire. Finally many of the issues advocated by the NAACP which will allow the federal government to maintain its “safety net” were left in place or extended: Social Security, Medicare and Medicaid were left untouched and the bill also extends for one year federal unemployment insurance, which benefits more than 2 million Americans who have been out of work for at least 26 weeks and was set to expire on December 31, 2012.

There were major issues which were left unresolved, however, which must be addressed in the very near future by the new Congress which will be sworn in on Thursday, January 3, 2013. These issues include the “sequester”, or automatic spending cuts, which were set to take place on January 2, 2013, now scheduled to take effect in March, 2013, and will reduce the budgets of most agencies and programs by 8% to 10%. These have been delayed by 2 months, thus giving the Administration and Congress more time to negotiate. Also left unaddressed is the debt ceiling, On Monday, Treasury Secretary Geithner announced that the U.S. had officially reached the $16.394 trillion debt ceiling. The Treasury Department, which runs the government's debt-issuance operation, can create about $200 billion of headroom by employing what it calls "extraordinary measures." That normally could cover about two months' worth of borrowing, although continuing uncertainty about tax rates and spending make it hard to determine precisely how long the extraordinary measures will last. This means that Congress needs to act by the end of February or early March to again raise the debt ceiling if we as a country are going to retain economic stability.

Read the full summary of this Bill.