Congress Prevents The Fiscal Cliff By Creating Another Cliff

Early in the morning on New Year's Day, Congress passed legislation to avert the ominous "fiscal cliff", a combination of spending cuts and tax increases that could have reverted the nation into a recession. The bill is now on its way to President Obama's desk to be signed.

In the Senate, the bill passed by a vote of 89-8 with 3 Democrats and 5 Republicans voting against the bill. The House passed the bill by a vote of 257-167 with 16 Democrats and 151 Republicans voting against the cliff deal.

The fiscal cliff deal, officially H.R. 8, The American Taxpayer Relief Act, includes the following provisions:

- Permanently extends Bush tax cuts for the majority of taxpayers. Taxes will increase on individuals making $400,000 or more and couples making $450,000 or more.

- Taxes on capital gains and dividends will remain the same for individuals making less than $400,000 and households with an income of less than $450,000. The top tax rate of capital gains will increase from 15% to 20%.

- Tax exceptions will be phased out for individuals making $250,000 or more and families earning more than $300,000.

- Delays sequestration cuts for 2 months. The delay will be paid for with savings from adjustments in federal pensions as well as cuts in discretionary and military spending.

- One year extension for unemployment insurance.

- One year "Doc Fix" that prevents 27% cut in physicians' reimbursement for Medicare.

- Estate tax will increase from 35% to 40% for the first $5 million in assets.

- Alternative Minimum Tax will permanently be tied to inflation.

- Five year extensions of the American Opportunity Tax Credit, Child Tax Credit, and the Earned Income Tax Credit.

- Business tax breaks.

- Nine month Farm Bill extension.

- Congressional pay freeze.

Although the nation did not fall off the cliff, the fiscal cliff deal may have setup a future crisis that the 113th Congress will need to tackle in the coming months. The crisis will be the simultaneous enactment of sequestration cuts and the debt limit expiration. Additionally, the FY13 budgeting CR will expire a few weeks after.  Prepare for the fiscal cliff 2.0.