WASHINGTON — Past its own New Year’s deadline, a weary Congress sent President Barack Obama legislation to avoid a national “fiscal cliff” of middle class tax increases and spending cuts late Tuesday night in the culmination of a struggle that strained America’s divided government to the limit.
The bill’s passage on a bipartisan 257-167 vote in the House sealed a hard-won political triumph for the president less than two months after he secured re-election while calling for higher taxes on the wealthy. The Senate had approved the measure on a vote of 89-8 less than 24 hours earlier.
Moments later, Obama strode into the White House briefing room and declared, “Thanks to the votes of Republicans and Democrats in Congress I will sign a law that raises taxes on the wealthiest 2 percent of Americans while preventing tax hikes that could have sent the economy back into recession.”
In addition to neutralizing middle class tax increases and spending cuts taking effect with the new year, the legislation will raise tax rates on incomes over $400,000 for individuals and $450,000 for couples. That was higher than the thresholds of $200,000 and $250,000 that Obama campaigned for. But remarkably, in a party that swore off tax increases two decades ago, dozens of Republicans supported the bill at both ends of the Capitol.
However, the legislation did nothing to prevent a temporary reduction in the Social Security payroll tax from expiring. In 2012, that 2-percentage-point cut in the payroll tax was worth about $1,000 to a worker making $50,000 a year.
The Tax Policy Center, a nonpartisan Washington research group, estimates that 77 percent of American households will face higher federal taxes in 2013 under the agreement negotiated between Obama and Senate Republicans. High-income families will feel the biggest tax increases, but many middle- and low-income families will pay higher taxes too.
Households making between $40,000 and $50,000 will face an average tax increase of $579 in 2013, according to the Tax Policy Center’s analysis. Households making between $50,000 and $75,000 will face an average tax increase of $822.
U.S. Rep. Nick Rahall (D-W.Va.) praised the bill’s passage, while U.S. Rep. Shelley Moore Capito (R-W.Va.) condemned it.
“With taxes scheduled to increase on working, middle-class families, Congress needed to do its job and pass legislation. It would have been irresponsible to vote to go over the cliff,” Rahall said. “We should be making incremental progress toward cutting the deficit while protecting priorities like job creation. We cannot wait indefinitely for an elusive grand bargain that addresses everything at once.”
“The last-minute, haphazard process led to an unbalanced bill that includes no substantial reductions in spending and actually adds $3.9 trillion to our deficit,” Capito said after the Senate’s passage. “If Congress is going to ask more from taxpayers, it must also ask more from Washington in the form of belt tightening across the federal government. Failing to enact meaningful reforms and spending cuts would truly be unforgivable to future generations.
The measure also split the upper ranks of the Republican leadership in the House.
Speaker John Boehner of Ohio voted in favor, while Majority Leader Eric Cantor of Virginia and California Rep. Kevin McCarthy, the party’s whip, opposed the bill. Rep. Paul Ryan of Wisconsin, the party’s 2012 vice presidential candidate, supported the measure.
Supporters of the bill in both parties expressed regret that it was narrowly drawn, and fell far short of a sweeping plan that combined tax changes and spending cuts to reduce federal deficits. That proved to be a step too far in the two months since Obama called congressional leaders to the White House for a postelection stab at compromise.
“Now the focus turns to spending,” Boehner said in a statement after the vote. “The American people re-elected a Republican majority in the House, and we will use it in 2013 to hold the president accountable for the ‘balanced’ approach he promised, meaning significant spending cuts and reforms to the entitlement programs that are driving our country deeper and deeper into debt.”
At its core, the bill is aimed at averting wide tax increases and budget cuts scheduled to take effect with the new year. The measure would raise taxes by about $600 billion over 10 years compared with tax policies that were due to expire at midnight Monday. It would also delay for two months across-the-board cuts to the budgets of the Pentagon and numerous domestic agencies.
• Income tax rates: Extends decade-old tax cuts on incomes up to $400,000 for individuals, $450,000 for couples. Earnings above those amounts would be taxed at a rate of 39.6 percent, up from the current 35 percent. Extends Clinton-era caps on itemized deductions and the phase-out of the personal exemption for individuals making more than $250,000 and couples earning more than $300,000.
• Estate tax: Estates would be taxed at a top rate of 40 percent, with the first $5 million in value exempted for individual estates and $10 million for family estates. In 2012, such estates were subject to a top rate of 35 percent.
• Capital gains, dividends: Taxes on capital gains and dividend income exceeding $400,000 for individuals and $450,000 for families would increase from 15 percent to 20 percent.
• Alternative minimum tax: Permanently addresses the alternative minimum tax and indexes it for inflation to prevent nearly 30 million middle- and upper-middle income taxpayers from being hit with higher tax bills averaging almost $3,000. The tax was originally designed to ensure that the wealthy did not avoid owing taxes by using loopholes.
• Other tax changes: Extends for five years Obama-sought expansions of the child tax credit, the earned income tax credit, and an up-to-$2,500 tax credit for college tuition. Also extends for one year accelerated “bonus” depreciation of business investments in new property and equipment, a tax credit for research and development costs and a tax credit for renewable energy such as wind-generated electricity.
• Unemployment benefits: Extends jobless benefits for the long-term unemployed for one year.
• Cuts in Medicare reimbursements to doctors: Blocks a 27 percent cut in Medicare payments to doctors for one year. The cut is the product of an obsolete 1997 budget formula.
• Social Security payroll tax cut: Allows a 2-percentage-point cut in the payroll tax first enacted two years ago to lapse, which restores the payroll tax to 6.2 percent.
• Across-the-board cuts: Delays for two months $109 billion worth of across-the-board spending cuts set to start striking the Pentagon and domestic agencies this week. Cost of $24 billion is divided between spending cuts and new revenues from rule changes on converting traditional individual retirement accounts into Roth IRAs.
The Associated Press contributed to this article.