Here are five things to know about the bill that passed the Senate overwhelmingly in the middle of the night.
1. No side won.
Republicans accepted higher taxes for the wealthiest Americans. Democrats accepted a higher threshold for who’s wealthy enough to face a higher tax rate. President Obama broke a vow to raise tax rates on household income over $250,000 and individual income over $200,000. And that’s just for starters. See more of what’s in the bill here.
2. We may have a new definition of “wealthiest Americans.”
President Obama made raising tax rates on the top 2% of earners in America a centerpiece of his re-election campaign. The 2% figure includes those with income over $250,000. The Senate compromise whittles that figure down. Tax rates will only go up for individuals with income over $400,000 and families earning more than $450,000.
The deal does, however, cap some deductions for individuals making $250,000 and for married couples making $300,000. That would allow the president bragging rights to say the deal raises taxes on people at those income levels. But he said just weeks ago that capping deductions at the $250,000 level would not be enough – and that tax rates would rise.
3. The deal “kicks the can,” and three more “fiscal cliffs” are looming.
The Senate deal does not address the sequester, a series of automatic cuts in federal spending. It delays the sequester for two months In the meantime, the Senate plan calls for $12 billion in new revenue and another $12 billion in spending cuts. The spending cuts are to be split between defense and nondefense spending.
So the deal adds another battle to this year’s docket of apparently inevitable congressional squabbles over money. The other two: the debt ceiling and a continuing budget resolution.
4. If it doesn’t pass
Because it’s now 2013, the broad series of changes brought on by the fiscal cliff are in effect. Officially, the Bush-era tax cuts across income levels have ended. If no action is taken, most Americans will pay more in taxes this year. But the timing also offers Republicans an opportunity to say they are now voting to cut taxes, rather than voting to allow some tax cuts to expire.
The House faces a deadline. At noon on Thursday, a new Congress will be sworn in. If the House has not acted, both chambers will have to start from scratch.
5. Either way, your paycheck is likely to shrink
The Senate deal does not address an increase in payroll taxes. No legislation to address the fiscal cliff is expected to. Now, the cut on those taxes has expired. Americans earning $30,000 a year will take home $50 less per month. Those earning $113,700 will lose $189.50 a month.