After months of tense negotiations, the U.S. House and Senate approved legislation to avoid the fiscal cliff on Tuesday. President Barack Obama signed the bill into law on Wednesday.
Features of the compromise include:
• Bush tax cuts for individuals making less than $400,000 a year and couples making less than $450,000 made permanent
• Tax rate on individuals earning more than $400,000 and couples earning more than $450,000 raised from 35 percent to 39.6 percent
• Unemployment insurance extended
• Sequester, a series of automatic federal budget cuts, delayed by two months
Vice President Joe Biden and Senate Minority Leader Mitch McConnell, a Republican from Kentucky, worked out the details of the plan.
The House voted to pass the bill 257-167. In the Senate, the bill passed 89-8. The bill was supported by the majority of congressional Democrats, but faced opposition from House Republicans, including Majority Leader Eric Cantor.
Despite the opposition within his own party, House Speaker John Boehner supported the bill, while acknowledging work still to be done in a statement released after the vote.
“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. Republicans stand for a stronger, more prosperous America, rich in opportunity and free of the debt that threatens our children’s future. On this New Year’s Day, we renew our commitment to that vision, humbled by the opportunity to serve,” Boehner said in the statement.
According to CNN, the bill prevents large scale budget cuts and tax increases that would have affected more than 98 percent of Americans.
The bill also calls for $12 billion in new revenue and another $12 billion in spending cuts to be divided between defense and nondefense spending.
According to estimates, the tax increase on higher earners alone will raise about $600 billion in new revenues over ten years, CNN reported.
Returning to Washington from his Hawaiian vacation for the vote, Obama said he was pleased with the deal.
“The sum total of all the budget agreements we’ve reached so far proves that there is a path forward that is possible, if we focus not on our politics but on what’s right for the country,” Obama said in a press conference. “And the one thing that I think, hopefully, in the new year, we’ll focus on is seeing if we can put a package like this together with a little bit less drama, a little less brinksmanship, not scare the heck out of folks quite as much.”
While the fiscal cliff has been avoided, Americans will also see slightly smaller paychecks as a result of an expiring payroll tax cut. In 2011, the federal government lowered the payroll tax rate from 6.2 percent to 4.2 percent. The cut expired Monday, Dec. 31.
Budget discussions will continue in the coming months as the government approaches its $16.4 trillion debt ceiling.