WASHINGTON -- A day late and trillions of dollars short, Congress passed a hard-won deal to ease large portions of the "fiscal cliff."
The nation started sliding down that cliff on New Year's Day, after lawmakers dithered for more than a year over solving the combination of across-the-board spending cuts and tax hikes that began taking effect with the start of the year.
The Senate passed a compromise at 2 a.m. Tuesday. The House threatened to blow up the deal, but reluctantly followed suit 20 hours later, ultimately passing a permanent extension of many Bush-era tax cuts by an overwhelming vote of 257 to 167.
The weeks-long debacle of tax negotiations brought into stark relief how focused the nation's Capitol remained on the deficit and debt, while focus on the jobs crisis nearly vanished, along with talk of economic devastation from climate change.
The Senate-crafted compromise, agreed to only the day before in lengthy negotiations between Vice President Joe Biden and Senate Minority Leader Mitch McConnell, was far smaller than the $4 trillion "grand bargain" that many lawmakers have sought since 2010, and lawmakers on both sides of the aisle expressed disappointment with a deal that angered both the left and right.
Republicans were upset the deal did not have cuts.
"We not only need to grow the economy but we also have to address the fundamental causes of our debts and deficits, and that's out-of-control spending, obligations that we have not got the financial wherewithal to meet," said Rep. Dave Camp, (R-Mich.) the top Republicans on the tax-writing Ways and Means Committee.
"So this is a first step -- permanent tax policy that then sets the stage for comprehensive and fundamental tax reform and then addressing out- of-control spending. So this will be several steps. This is an important one."
Liberals were unhappy Democrats left out a number of their goals for the bill, and that they did not push for setting the upper limit for retaining the old tax rates at $250,000 -- a promise Obama campaigned and won on. Obama had hoped to raise $1.6 trillion in revenue over 10 years. The bill only raises $620 billion, suggesting to many Democrats that future deficit reduction could come from cutting cherished programs.
"We're going to look back on this night and regret it," said Rep. Jim Moran (D-Va.).
Rep. Charlie Rangel (D-N.Y.) said passing the legislation was as if, "someone stopped hitting you in the head with a hammer, and you're supposed to say 'Thanks so much!'"
Yet most Democrats were willing to back the measure.
"Yes, to all of those who say all the other things that don't happen in the bill -- I don't know any piece of legislation I've ever voted for that did everything that I thought it should do," House Minority Leader Nancy Pelosi (D-Calif.) said. "While this bill doesn't accomplish all that we need to do … it is a good way for us to have a happy start to a new year by taking this first step."
Democrats also were pleased that for the first time in decades Republicans signed onto a measure that leaves taxes higher this year than the year before.
"This legislation breaks the iron barrier that for far too long has prevented additional tax revenues from the very wealthiest," said Rep. Sander Levin (D-Mich.) "It raises $620 billion in revenue by achieving the president's goal of asking the wealthiest 2 percent of Americans to pay more while protecting 98 percent of families. That's right -- that's what it does. I want to emphasize this contrary to propaganda coming from the other side -- it prevents 98 percent of businesses from another tax increase."
Despite the general unhappiness with the measure, which President Barack Obama has said he'll sign, it does achieve some major policy changes, chief among them making permanent the Bush-era tax cuts for couples earning under $450,000 and individuals earning under $400,000.
The bill also keeps the estate tax threshold at $5 million, extends emergency federal unemployment benefits for one more year, and delays for two months the "sequester" that made up the spending cut portion of the cliff. It also extends the stimulus-boosted child tax credit and the college tuition credit for five years, individual and business tax breaks for two years, and the Medicare "doc fix" for one year, preventing a 27 percent payment cut for physicians. The Alternative Minimum Tax will be permanently fixed, and the the farm bill will be extended for one year.
Though it has received little attention from the press, the White House and congressional leaders, the decision not to include an extension of the payroll tax holiday is among the most consequential, and will lead to lower take-home pay for workers. A person earning $50,000 will see roughly $1,000 less. Economists have warned that allowing the tax holiday to expire saps spending power from consumers while demand in the economy is still fragile.
Meanwhile, the deal contains a major giveaway to Wall Street, which won a 20 percent rate on dividends above $400,000, a rate that otherwise would've risen to the Clinton-era rate of 39.6. (That doesn't include an additional 3.8 percent that will be implemented to pay for health care reform, another tax hike that received little attention.)
The deal is also chock full of goodies for corporate America, including millions for NASCAR and Hollywood, and billions to extend overseas corporate tax breaks and other loopholes.
Republicans in the House spent much of Tuesday threatening to blow up the bill over the the lack of spending cuts. They went so far as to propose amending the measure with a $328 billion package of budget reductions, but facing the likelihood that a revised measure would fail muster with Democrats, caved in after two lengthy meetings behind closed doors.
Having lost a battle that many of them fought for years, the GOP was looking forward to future chances to extract cuts, likely setting up more last-second showdowns in March. That's because the two-month delay of the sequester ends March 3, right around the time the nation is expected to reach its borrowing limit -- which Congress has to extend to pay the bills. Funding for the federal government also runs out on March 27.
The GOP sees each of those as leverage points.
"We still have more opportunities. We've got the debt ceiling coming, sequestration," said John Fleming (R-La.) among the first in his party to acknowledge that with the Bush tax cuts having expired at midnight, there was little else the GOP could do beyond take the senate deal.
"So we're going to get taxes off the table," Fleming said. "The president can't say, 'We've go to raise taxes first before we get to spending cuts.' We will have already done that. Now the topic will be spending cuts, from this point out."
The disarray on the Republican side had many wondering if House Speaker John Boehner's job was in danger, but most members said it was not, and that Boehner ably managed the eruption of discontent in his ranks.
"I think he showed he's trying to listen to the conference in regards to giving everybody an equal shot at moving something forward," said Rep. Richard Nugent (R-Fla.), who opposed the bill. "But you also have to be pragmatic about what's going to pass."
UPDATE: 11:57 p.m. -- Obama hailed the deal as evidence that bipartisanship can happen even in the polarized Congress, but he also signaled that he was keenly aware that many Republicans intend to seize on the next three crisis moments, especially the debt ceiling. He vowed he would not let them.
"I will not have another debate with this Congress over whether or not they should pay the bills they've already racked up through the laws that they passed," Obama said in brief speech from the White House. "Let me repeat. We can't not pay bills that we've already incurred. If Congress refuses to give the United States government the ability to pay these bills on time, the consequences for the entire global economy would be catastrophic, far worse than the impact of a fiscal cliff."
And he appealed for lawmakers to face the approaching deadlines with greater calm and the sense of bipartisanship they managed to achieve on New Year's Day.
"The one thing I think hopefully in the new year we'll focus on is seeing if we can put a package like this together with a little bit less drama, a little less brinksmanship, not scare the heck out of folks quite as much," Obama said.
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