After months of debate, which dominated headlines at the close of 2012, Congress passed legislation to raise taxes on the wealthiest Americans and protect various federal programs from spending cuts on New Year’s Day. The vote was a move to help the nation avoid the so-called “fiscal cliff.”
The resolution, known as the American Taxpayer Relief Act of 2012, easily passed the Senate but faced serious contention in the House of Representatives. House Republicans challenged the bill on the grounds that it would stop wide-ranging cuts in government spending, which were scheduled to take place at the start of the new year.
Though Republicans objected to targeting the wealthy for tax hikes, they believed that making cuts in federal spending was crucial to solving the national debt problem, according to The New York Times.
House Speaker John Boehner, who voted in favor of the bill, said out-of-control spending in entitlement programs—which include Medicare—is “driving our country deeper and deeper into debt.”
Without a resolution from Congress, the Bush-era tax cuts, for which all taxpayers were eligible, would have been renewed. Under the new fiscal cliff deal, the tax cuts will be extended to all but those individuals earning more than $400,000 annually and couples earning more than $450,000.
The increase in taxes on the nation’s top earners is projected to raise about $600 billion in revenue throughout 10 years, cnn*.com reported.
The fight to stop the extension of Bush-era tax breaks and the scheduled cuts in government spending became heated when the Congressional Budget Office reported in November that such measures would result in a recession.
According to The New York Times, economists predicted that extending tax breaks for the wealthy while making large cuts in federal programs would have been too drastic a deficit reduction for a weak economy to sustain.
The passage of the fiscal cliff resolution was a political victory for President Barack Obama, who said changing tax codes that were “too skewed toward the wealthy at the expense of working, middle-class Americans” was a “central premise” to his campaign.
Obama also expressed his hope that leaders on Capitol Hill could work together more harmoniously in their continuing efforts to solve the nation’s budget crisis.
“The one thing that I think, hopefully, the new year will focus on is seeing if we can put a package like this together with a little less drama, a little less brinkmanship, and not scare the heck out of folks so much,” Obama said.
The American Taxpayer Relief Act is not a cure-all for economic woes, as evidenced by continuing debate and political maneuvering by Congress to boost the economy. On Friday, the House agreed to a three-month increase in the national debt limit, which would allow the government to borrow needed money to fund federal programs and fulfill its legal obligations.
Despite the gains made by Congress, the start of the new year brought tax increases for all earners, as the fiscal cliff deal included the expiration of a recent payroll “tax holiday.” During the tax holiday, which was enacted in 2010 to stimulate the economy, the payroll tax was at 4.2 percent, down from 6.2 percent. The payroll tax cut expired on Jan. 1.
