The Senate approved a bipartisan agreement early Tuesday morning to let income taxes rise sharply for the first time in two decades, fulfilling President Obama’s promise to raise taxes on the rich and avoiding the worst effects of the “fiscal cliff.” The agreement, brokered by Vice President Biden and Senate Minority Leader Mitch McConnell (R-Ky.), passed 89 to 8 in a highly unusual New Year’s morning vote. It now heads to the House, where leaders have not guaranteed passage but top officials believe it could win passage in the next few days.
The agreement primarily targets taxpayers who earn more than $450,000 per year, raising their rates for wages and investment profits. At the same time, the deal would protect more than 100 million households earning less than $250,000 a year from income tax increases scheduled to take effect Jan. 1.
The deal came together barely three hours before the midnight deadline, after negotiators cleared two final hurdles involving the estate tax and automatic spending cuts set to affect the Pentagon and other federal agencies this week.
Republicans gave in on the spending cuts, known as sequestration, by agreeing to a two-month delay in budget reductions that would be paid for in part with new tax revenue, a condition they had resisted. And the White House made a major concession on the estate tax, agreeing to terms that would permit estates worth as much as $15 million to escape taxation by the end of the decade, Democrats said.
As the deadline for agreement closed in on Monday, Biden rushed to the Capitol to brief Senate Democrats on the deal, as Majority Leader Harry M. Reid (D-Nev.) laid plans for a vote shortly after midnight, when taxes were set to rise for virtually every American.
“I think we’ll get a very good vote tonight,” a beaming Biden said as he emerged from the meeting with Democrats after nearly two hours. “But happy new year and I’ll see you all maybe tomorrow.”
The measure is now at the House, where Speaker John A. Boehner (R-Ohio) pledged to bring it to a vote in the coming days. “Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members — and the American people — have been able to review the legislation,” Boehner and other GOP leaders said in a written statement.
Senior aides predicted the measure would pass the House with bipartisan support. But Boehner’s decision to delay the vote meant the nation would tumble over the cliff at least briefly.
In addition to dealing with the fiscal crisis, the measure would extend federal farm policies through September, averting an estimated doubling of milk prices. The deal also nixed a set pay raise for members of Congress.
During a midday event at the White House, Obama praised the emerging agreement even though it would raise only about $600 billion over the next decade by White House estimates — far less than the $1.6 trillion the president had initially sought to extract from the nation’s richest households.
The agreement “would further reduce the deficit by asking the wealthiest 2 percent of Americans to pay higher taxes for the first time in two decades. . . . So that’s progress,” Obama said.
“Keep in mind that just last month, Republicans in Congress said they would never agree to raise tax rates on the wealthiest Americans. Obviously, the agreement that’s currently being discussed would raise those rates and raise them permanently,” he said.
Some liberals were fuming about the accord, complaining that Obama had been promising to increase taxes on income over $250,000 a year — a much lower threshold — since he ran for the White House in 2008.
Sen. Tom Harkin (D-Iowa) said: “If you make $250,000 a year, you’re not middle class. You’re in the top 2 percent of income earners in America... No deal is better than a bad deal, and this looks like a very bad deal the way this is shaping up.”
Other Democrats were upset about the administration’s decision to maintain a big exemption for inherited estates that allows those worth as much as $5 million — $10 million for couples — to go untaxed.
Although the White House won an agreement to raise the tax rates on larger estates from 35 percent to 40 percent, Republicans successfully insisted that the exemption should be adjusted annually for inflation, a provision that would increase the exemption amount to $7.5 million for individuals and $15 million for couples by 2020, said Rep. Chris Van Hollen (Md.), the ranking Democrat on the House Budget Committee.
He called the final agreement a “sweetheart giveaway to the wealthiest 7,200 estates in the country.”