Everyone's Paychecks Will Shrink No Matter What

WASHINGTON (CBS/AP) — The U.S. House of Representatives has passed the “fiscal cliff” deal already approved by the U.S. Senate, after a decision not to allow amendments that would have kicked it back to the Senate.

The bill needed 217 votes to pass. It had in 257 in favor, but more than 167 votes against — all but a few from Republicans.

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“Thanks to the votes of Democrats and Republicans in Congress, I will sign a bill that raises taxes on the wealthiest 2 percent of Americans, while preventing a middle-class tax hike that could have sent the economy back into recession,” President Barack Obama said.

Obama said income taxes will remain stable for 98 percent of Americans, and 97 percent of small businesses. Tax credits will also continue for millions of families and companies, and unemployment benefits will continue for those looking for work.

Obama thanked Congressional leaders for their cooperation, but emphasized that the work is not done.

“The fact is, the deficit is still too high, and we’re still investing too little in the things that we need for the economy to grow as fast as it should,” Obama said, adding that he and Boehner had hoped for a larger agreement.

Obama also warned Congress that he had no patience for another debt ceiling showdown.

“I will not have a debate with this Congress over whether or not they should pay the bills that they already racked up through the laws that they passed,” he said.

House Speaker John Boehner (R-Ohio) voted yes on the bill, while Majority Leader Eric Cantor (R-Va.) voted no, CBS 2’s Dick Brennan reported.

“Bottom line is this is not a perfect bill, but I think it’s the best we can get at this time,” said U.S. Rep. Peter King (R-N.Y.) “I will be voting for it, and I’m voting for it, and I’m confident right now it’s going to pass.”

In debating the bill, Republicans did their best to minimize the tax increases in the measure.

Rep. David Dreier, R-Calif., in the final days of a 32-year-career in Congress, said the legislation was “not the grand bargain we’d hoped for” to reduce federal deficits. “But it is an essential bridge to what I hope will be a comprehensive and long-term solution. It will bring us back from the edge of the fiscal cliff and implement tax cuts for 99% of taxpayers.”

Declared Rep. Marcy Kaptur, D-Ohio: “This is a great victory for the middle class, whose taxes will not go up tomorrow.”

The decision not to kick the bill back to the Senate and demand more spending cuts capped a day of intense political calculations for conservatives who control the House. They had to weigh their desire to cut spending against the fear that the Senate would refuse to consider any changes they made in the “fiscal cliff” bill, sending it into limbo and saddling Republicans with the blame for a whopping middle class tax increase.

Earlier, some Republicans said they want more cuts to balance the budget, and on Tuesday afternoon, House Majority Leader Eric Cantor (R-Va.) said he does not support the bill.

In a New Year’s Day drama that climaxed in the middle of the night, the Senate endorsed the legislation by 89-8 early Tuesday. That vote came hours after Vice President Joe Biden and Senate Republican Leader Mitch McConnell of Kentucky sealed a deal.

But while income taxes specifically might not go up for everyone, any deal means some of your taxes will go up – no matter what your income level.

The bill, named the American Taxpayer Relief Act of 2012, will not raise income taxes on households making under $450,000 a year. But everyone will still see less money in his or her paycheck beginning this week.

Once Obama signs the bill, the Bush-era tax cuts will be permanently extended for everyone making less than $400,000 a year and families making less than $450,000. The bill prevents the alternative minimum tax from expanding to millions of middle-class families.

The bill also increases the estate tax from 35 percent to 40 percent, but only for estates over $5 million for individuals and $10 million for couples.

The even more contentious issue of spending cuts was kicked two months down the road.

That would allow the White House and lawmakers time to regroup before plunging very quickly into a new round of budget brinkmanship, certain to revolve around Republican calls to rein in the cost of Medicare and other government benefit programs.

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Taxes on capital gains and dividends over $400,000 for individuals and $450,000 for couples would be taxed at 20 percent, up from 15 percent.

The bill would also extend jobless benefits for the long-term unemployed for an additional year at a cost of $30 billion, and would spend $31 billion to prevent a 27 percent cut in Medicare payments to doctors.

Another $64 billion would go to renew tax breaks for businesses and for renewable energy purposes, like tax credits for energy-efficient appliances.

Neither side of the aisle was overjoyed with all the details, but there was relief.

The sweeping Senate vote exceeded expectations — tea party conservatives like Pat Toomey, R-Pa., and Ron Johnson, R-Wis., backed the measure — and would appear to grease enactment of the measure despite lingering questions in the House, where conservative forces sank a recent bid by Boehner to permit tax rates on incomes exceeding $1 million to go back to Clinton-era levels.

In the Senate, three Democrats and five Republicans voted against the legislation.

“Middle class families will wake up to day to the assurance that their taxes won’t go up $2,200 each,” said Senate Majority Leader Harry Reid (D-Nev.)

But as earlier noted, that is not entirely true. What was not discussed in these negotiations, and what kicks in starting Tuesday, is an across-the-board increase in payroll taxes.

A temporary cut put into place in 2010 to help the economy was allowed to expire, meaning the Social Security payroll tax goes up from 4.2 percent to 6.2 percent.

For households making $65,000, that translates to $1,300 in additional taxes.

For those making $113,000 or more, that’s an extra $2,274 taken out of their paychecks.

“I think there’s got to be solutions that we look at other than just raising taxes,” a woman said.

“Taxes, taxes, taxes!” a man added.

Investment bank JP Morgan Chase predicts the higher payroll taxes will cut consumer spending by as much as $100 billion this year. But if the country had been allowed to go over the fiscal cliff, your taxes could have been even more.

The reason the payroll tax cut was not an issue in the fiscal cliff negotiations was because the tax break cost upwards of $125 billion a year, at a time when all of Washington is trying to shrink the federal budget.

Some Surprising Tax Breaks Left Intact
CBS 2’s Don Dahler reported the 157-page bill has some surprising provisions that might not leave the average American taxpayer thrilled.

For example, to minimize the impact of changes in the tax code on businesses during this tough economy, a number of tax breaks were extended for things such as research costs, work opportunity credits, even railroad track maintenance. It also restores college tuition credits.

But motorsports entertainment complexes? That’s right the bill extends a seven-year investment recovery period for race tracks.

New York City will continue to enjoy tax breaks for financing and development of the area around ground zero, and folks building energy efficient new homes will still receive credits.

The bill also extended limits on excise taxes for rum imports from Puerto Rico and the Virgin Islands, and extended credits for the economic development of American Samoa.

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