Cliff avoided: Congress staves off tax hikes

WASHINGTON (AP) — Past its own New Year's

deadline, a weary Congress sent President Barack Obama legislation to

avoid a national

"fiscal cliff" of middle class tax increases and spending cuts

late Tuesday night in the culmination of a struggle that strained

America's divided government to the limit.

The bill's passage on a bipartisan 257-167 vote in the House sealed a hard-won political triumph for the president less than

two months after he secured re-election while calling for higher taxes on the wealthy.

Moments later, Obama strode into the White

House briefing room and declared, "Thanks to the votes of Republicans

and Democrats

in Congress I will sign a law that raises taxes on the wealthiest 2

percent of Americans while preventing tax hikes that could

have sent the economy back into recession."

He spoke with Vice President Joe Biden at his side, a recognition of the former senator's role as the lead Democratic negotiator

in final compromise talks with Senate Republican Leader Mitch McConnell of Kentucky.

In addition to neutralizing middle class tax

increases and spending cuts taking effect with the new year, the

legislation

will raise tax rates on incomes over $400,000 for individuals and

$450,000 for couples. That was higher than the thresholds

of $200,000 and $250,000 that Obama campaigned for. But

remarkably, in a party that swore off tax increases two decades ago,

dozens of Republicans supported the bill at both ends of the

Capitol.

The Senate approved the measure on a vote of 89-8 less than 24 hours earlier, and in the interim, rebellious House conservatives

demanded a vote to add significant spending cuts to the measure. But in the end they retreated.

The measure split the upper ranks of the Republican leadership in the House.

Speaker John Boehner of Ohio voted in favor, while Majority Leader Eric Cantor of Virginia and California Rep. Kevin McCarthy,

the party's whip, opposed the bill.

Supporters of the bill in both parties expressed regret that it was narrowly drawn, and fell far short of a sweeping plan

that combined tax changes and spending cuts to reduce federal deficits. That proved to be a step too far in the two months

since Obama called congressional leaders to the White House for a postelection stab at compromise.

Majority Republicans did their best to minimize the bill's tax increases, just as they abandoned their demand from earlier

in the day to add spending cuts to the package.

"By making Republican tax cuts permanent, we

are one step closer to comprehensive tax reform that will help

strengthen our

economy and create more and higher paychecks for American

workers," said Rep. Dave Camp of Michigan, chairman of the tax-writing

House Ways and Means Committee.

He urged a vote for passage to "get us one step closer to tax reform in 2013" as well as attempts to control spending.

House Democratic Leader Nancy Pelosi also said the legislation included "permanent tax relief for the middle class," and she

summoned lawmakers to provide bipartisan support as the Senate did.

The bill would also prevent an expiration of extended unemployment benefits for an estimated two million jobless, block a

27 percent cut in fees for doctors who treat Medicare patients, stop a $900 pay increase for lawmakers from taking effect

in March and head off a threatened spike in milk prices.

It would stop $24 billion in across-the-board spending cuts set to take effect over the next two months, although only about

half of that total would be offset with savings elsewhere in the budget.

The economic as well as political stakes were considerable.

Economists have warned that without action by Congress, the tax increases and spending cuts that technically took effect with

the turn of the new year at midnight could send the economy into recession.

Even with enactment of the legislation, taxes are on the rise for millions.

A 2 percentage point temporary cut in the

Social Security payroll tax, originally enacted two years ago to

stimulate the economy,

expired with the end of 2012. Neither Obama nor Republicans made a

significant effort to extend it.

House Republicans spent much of the day struggling to escape a political corner they found themselves in.

"I personally hate it," Rep. John Campbell of California, said of the measure, giving voice to the concern of many Republicans

that it did little or nothing to cut spending.

"The speaker the day after the election said we would give on taxes and we have. But we wanted spending cuts. This bill has

spending increases. Are you kidding me? So we get tax increases and spending increases? Come on."

Cantor told reporters at one point, "I do not support the bill. We are looking, though, for the best path forward."

Within hours, Republicans abandoned demands for changes and agreed to a simple yes-or-no vote on the Senate-passed bill.

They feared that otherwise the Senate would

refuse to consider any alterations, sending the bill into limbo and

saddling Republicans

with the blame for a whopping middle class tax increase. One

Senate Democratic leadership aide said Majority Leader Harry

Reid would "absolutely not take up the bill" if the House changed

it. The aide spoke on condition of anonymity, citing a requirement

to keep internal deliberations private.

Despite Cantor's remarks, Boehner took no public position in advance of voting the bill as he sought to negotiate a conclusion

to the final crisis of a two-year term full of them.

The brief insurrection wasn't the first time

that the tea party-infused House Republican majority has rebelled

against the

party establishment since the GOP took control of the chamber 24

months ago. But with the two-year term set to end Thursday

at noon, it was likely the last. And as was true in earlier cases

of a threatened default and government shutdown, the brinkmanship

came on a matter of economic urgency, leaving the party open to a

public backlash if tax increases do take effect on tens

of millions.

The non-partisan Congressional Budget Office

said the measure would add nearly $4 trillion over a decade to federal

deficits,

a calculation that assumed taxes would otherwise have risen on

taxpayers at all income levels. There was little or no evident

concern among Republicans on that point, presumably because of

their belief that tax cuts pay for themselves by expanding

economic growth and do not cause deficits to rise.

The relative paucity of spending cuts was a sticking point with many House Republicans. Among other items, the extension of

unemployment benefits costs $30 billion, and is not offset by savings elsewhere.

Others said unhappiness over spending outweighed fears that the financial markets will plunge on Wednesday if the fiscal cliff

hasn't been averted.

"There's a concern about the markets, but there's a bigger concern, which is getting this right, which is something we haven't

been very good at over the past two years," said Rep. Steve LaTourette of Ohio.

For all the struggle involved in the legislation, even its passage would merely clear the way for another round of controversy

almost as soon as the new Congress convenes.

With the Treasury expected to need an

expansion in borrowing authority by early spring, and funding authority

for most government

programs set to expire in late March, Republicans have made it

clear they intend to use those events as leverage with the

administration to win savings from Medicare and other government

benefit programs.

McConnell said as much moments before the 2 a.m. Tuesday vote in the Senate — two hours after the advertised "cliff" deadline.

"We've taken care of the revenue side of

this debate. Now it's time to get serious about reducing Washington's

out-of-control

spending," he said. "That's a debate the American people want.

It's the debate we'll have next. And it's a debate Republicans

are ready for."

The 89-8 vote in the Senate was unexpectedly lopsided.

Despite grumbling from liberals that Obama had given way too much in the bargaining, only three Democrats opposed the measure.

Among the Republican supporters were Sen. Pat Toomey of Pennsylvania, an ardent opponent of tax increases, as well as Sen.

Ron Johnson of Wisconsin, elected to his seat two years ago with tea party support.