Fighting what at one point seemed to be a losing battle against the sands of time, the White House and Senate Republicans managed to reach a deal on Monday evening to come into effect on Midnight New Years Eve and avoid the dreaded fiscal cliff, administration official have confirmed.
In accordance with the agreement, middle class tax rates will stay as they are while increases will come into effect for couples earning over $450,000 and individuals earning upwards of $400,000.
In addition, the deal will see the two-month deferral of $24 billion in spending cuts, which concerned various domestic programs and the Pentagon. This will in turn give lawmakers and the White House a little breathing space and time to get it together, prior to expected action to decrease Medicare spending and several other programs of benefits.
Economists across the US have already spoken of their surprise at both partied being able to hammer out such an agreement at the very last minute, despite facing an array of long-standing and fast spiraling disagreements.
Even by the dysfunctional standards of government-by-gridlock, the activity at both ends of historic Pennsylvania Avenue was remarkable as the administration and lawmakers spent the final hours of 2012 haggling over long-festering differences.
“One thing we can count on with respect to this Congress is that if there’s even one second left before you have to do what you’re supposed to do, they will use that last second,” said President Obama when delivering en early update on the day’s talks.
As the sun went down on New Years Even and it seemed impossible for a resolution to be found, the Senate and White House were practically buzzing with activity. Obama was criticized by many democrats who argued that increasing taxes only for earners of $450,000 or more gave too much away and was a far cry from the $250,000 he’d cited during his campaign.
Conversely, there were plenty of Republicans who weren’t happy with the idea of increasing any taxes whatsoever.
In the absence of legislation, a fiscal cliff of spending cuts and tax increases could have plunged the country into recession, according to government and industry economists. And despite the fact that the deadline was technically midnight, Obama actually has until January 3rd to sign on the dotted line – the date on which a new Congress takes office.
Both parties eventually agreed on the move to rule-out tax increases for couples and individuals earning below $450,000 and $400,000 respectively.
Higher earners will in turn be looking at maximum tax obligations increasing from the current 35% to 39.6%. Dividends and capital gains that exceed the above amounts will see a higher tax rate of 20% compared to the current 15%.
Estates with values exceeding $5 million will also be liable for increased taxed of 40%.
At the same time as avoiding higher taxes for most average income brackets, the deal also upholds existing tax break for low-income houses, families with young children and for families with student children.