Fiscal cliff crises averted, but more fights loom






STORY HIGHLIGHTS


  • Rise in rates is first for any Americans since '93, according to Tax Foundation

  • The vote prevents tax increases for more than 98% of Americans

  • It also wards off $110 billion in automatic cuts to domestic and military spending

  • Reid accused Boehner of "dictatorship" Friday; Boehner responded with profanity




(CNN) -- After exhaustive negotiations that strained the country's patience, the House approved a bill to avert the dreaded fiscal cliff, staving off widespread tax increases and deep spending cuts.


In the 257-167 vote late Tuesday, 172 Democrats and 85 Republicans favored the bill; 16 Democrats and 151 Republicans opposed it.


The approved plan maintains tax cuts for individuals earning less than $400,000 per year and couples earning less than $450,000. It will raise tax rates for those who make more -- marking the first time since 1993 that federal income tax rates have gone up for any Americans, according to the Tax Foundation.


The bill also extends unemployment insurance and delays for two months the threat of sequestration, a series of automatic cuts in federal spending.


World markets rose after the news. U.S. stocks jumped, too, with the Dow rising 210 points after opening. And federal workers breathed a sigh of relief as the deal provides a reprieve from across-the-board cuts of 8% to 10% of their budgets. The Defense Department said it has stayed furlough notices for its civilian work force of 800,000, but Pentagon officials say they're worried that unpaid leave may be harder to implement later in the fiscal year.


"We hope Congress can find a way to end sequester once and for all," Pentagon spokesman George Little said.


Just hours before the bill passed, House Speaker John Boehner pitched to fellow Republicans the idea of amending the Senate-approved bill to add a package of spending cuts. He cautioned about the risk in such a strategy, saying there was no guarantee the Senate would act on it.


Rum, electric vehicles and motor sports: Nuggets in the fiscal cliff bill










By the end of the night, he was among the Republicans who voted for the bill as written.


President Barack Obama said he would sign the bill into law, but he did not say when. After the vote, he flew to Hawaii to rejoin his wife and daughters on their winter vacation.


Congress is planning to send the bill to the White House by early afternoon, a Republican leadership aide told CNN.


In practical terms, there's no urgency on the president's signature. It's up to the Obama administration to implement the budget and tax changes, and since the president has said he will sign the measure, the administration can begin planning for the changes immediately.


Had the House not acted, and the Bush-era tax cuts expired fully, broad tax increases would have kicked in. In addition, $110 billion in automatic cuts to domestic and military spending would have taken place.


The combined effect could have dampened economic growth by 0.5%, possibly tipping the U.S. economy back into a recession and driving unemployment from its current 7.7% back over 9%, according to economists' estimates.


While the package provides some short-term certainty, it leaves a range of big issues unaddressed.


It doesn't mention the $16.4 trillion debt ceiling that the United States reached Monday.


iReport: What's your message for Washington?


Come late February, Congress will have to tackle both the debt ceiling and the postponed sequester -- a legacy of the last battle over the debt ceiling, in 2011.


Obama warned Congress that he will not tolerate another act of prolonged brinksmanship.


"While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they've already racked up through the laws that they've passed," he said after the Tuesday night vote.


"We can't not pay bills that we've already incurred. If Congress refuses to give the United States government the ability to pay these bills in time, the consequences for the entire global economy would be catastrophic -- far worse than the impact of the fiscal cliff."


How they voted: House | Senate


A partial victory


While the deal gives Obama bragging rights for raising taxes on the wealthiest Americans, it also leaves him breaking a promise.


Obama had vowed to raise tax rates for the top-earning 2% of Americans, including those with household income above $250,000 and individuals earning more than $200,000.


Raising the threshold for higher tax rates shrinks the number of Americans affected. While nearly 2% of filers have adjusted gross incomes over $250,000, only 0.6% have incomes above $500,000, according to the Tax Policy Center. By comparison, Census Bureau figures put the median U.S. household income at just over $50,000.


Some House Republicans weren't exactly overjoyed in voting for the plan.


Opinion: Look beyond the fiscal cliff


"I'm a very reluctant yes," said Rep. Nan Hayworth, an outgoing Republican representative from New York.


"This is the best we can do, given the Senate and the White House sentiment at this point in time, and it is at least a partial victory for the American people," she said. "I'll take that at this point."


Conservative lobbyist Grover Norquist, whose Americans for Tax Reform pushes candidates to sign a pledge never to raise taxes, said the plan preserves most of the Bush tax cuts and won't violate his group's beliefs.


"The Bush tax cuts lapsed at midnight last night," Norquist tweeted Tuesday. "Every (Republican) voting for Senate bill is cutting taxes and keeping his/her pledge."


The timing of the vote was crucial, as a new Congress is set to be sworn in Thursday. And without a breakthrough, the entire process would have had to start over.


Cliff deal spurs global market rally


Specifics of the plan


The legislation will raise roughly $600 billion in new revenues over 10 years, according to various estimates.


According to the deal:


-- The tax rate for individuals making more than $400,000 and couples making more than $450,000 will rise from the current 35% to the Clinton-era rate of 39.6%.


-- 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%.


-- Unemployment insurance will be extended for a year for 2 million people.


-- The alternative minimum tax, a perennial issue, will be permanently adjusted for inflation.


-- Child care, tuition and research and development tax credits will be renewed.


-- The "Doc Fix" -- reimbursements for doctors who take Medicare patients -- will continue, but it won't be paid for out of the Obama administration's signature health care law.


The Democratic-led Senate overwhelmingly approved the bill early Tuesday before passing it to the House.


As news about the fiscal cliff's deflection spread across the world, several markets reacted positively Wednesday.


Australia's ASX All Ordinaries index added 1.2%. South Korea's KOSPI gained 1.5%, and the Hang Seng in Hong Kong advanced 1.9%. Tokyo's Nikkei and the Shanghai Composite remain closed for holiday celebrations but will reopen later in the week.


More fiscal cliffs loom


Payroll taxes still set to go up


Despite the last-minute fiscal cliff agreements, Americans are still likely to see their paychecks shrink somewhat because of a separate battle over payroll taxes.


The government temporarily lowered the payroll tax rate in 2011 from 6.2% to 4.2% to put more money in the pockets of Americans. That adjustment, which has cost about $120 billion each year, expired Monday.


Now, Americans earning $30,000 a year will take home $50 less per month. Those earning $113,700 will lose $189.50 a month.


Opinion: Cliff deal hollow victory for American people


With the latest battle round over, lawmakers will next set their sights on the other items on their docket of congressional squabbles over money: the debt ceiling and resolving the sequester.


Obama said he hopes leaders in Washington this year will focus on "seeing if we can put a package like this together with a little bit less drama, a little less brinksmanship (and) not scare the heck out of folks quite as much."


He thanked bipartisan House and Senate leaders for finally reaching a resolution Tuesday, but said Congress' work this year is just beginning.


"I hope that everybody now gets at least a day off I guess, or a few days off, so that people can refresh themselves, because we're going to have a lot of work to do in 2013."


Read more: 5 things to know about the fiscal cliff


Angry rhetoric flew


In the tense days leading up to the deal, heated words flew between some Democrats and Republicans.


On Friday, after Democratic Senate Majority Leader Harry Reid accused Boehner of holding a "dictatorship" in his chamber, the House speaker responded with a profanity.


"Go f— yourself," Boehner said to Reid, according to a source with knowledge of the exchange in a White House lobby.


Big issues still pending


CNN's Dana Bash, Rich Barbieri, Charles Riley, Dana Ford, Matt Smith, Jessica Yellin, Deirdre Walsh and Ted Barrett contributed to this report.






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