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WASHINGTON, D.C. -- Most of the country went to bed Tuesday night expecting the country to tumble further off the ”fiscal cliff” by morning. However, a late night vote in the U.S. House of Representatives pulled the country back from a potential economic nightmare.
Less than one day after the U.S. Senate approved the deal overwhelmingly by a vote of 89 to 8 -- that vote came at 2 a.m. Tuesday -- the House also threw support behind the measure by a 257 to 167 tally.
After fruitless weeks of trying to reach a compromise, Senate Minority Leader Mitch McConnell (R-Ky.) and Vice President Joe Biden met on Sunday to hammer out a deal that both Republicans and Democrats could agree on.
The bill would increase the top 35 percent income tax rate to 39.6 percent for incomes exceeding $400,000 for individuals and $450,000 for couples, while continuing decade-old income tax cuts for everyone else, according to the Associated Press.
The bill would also raise taxes top earners pay on dividends, capital gains and inherited estates; permanently stop the alternative minimum tax from raising levies on millions of middle-income families; extend expiring jobless benefits; prevent cuts in Medicare reimbursements to doctors; and delay, for two months, billions in budget-wide cuts in defense and domestic programs slated for this year.
However, legislators failed to reach an agreement on any significant deficit-cutting measures or the immediate expiration of a two-year, 2-percentage-point cut in the Social Security payroll tax.
Approval of the measure came nearly 24 hours after a decade's worth of tax cuts expired with the stroke of the new year, technically raising taxes by more than $500 billion in 2013 alone. Those tax increases -- plus $109 billion in defense and domestic spending cuts that were to be automatically triggered Wednesday -- became known as the fiscal cliff. Economists warned that their combined impact would throw the economy back into recession, but President Barack Obama's signature on the bill would prevent the "cliff" from taking hold, the news agency reported.
Approximately $46 billion in business tax breaks were included in the deal.
The bill contains some tax "extenders," or temporary tax provisions that will be perpetuated for a year, according to Reuters, including an extension through 2013 of the research and development tax credit, and a provision allowing businesses to write off immediately half the value of new investments, known as 50 percent bonus depreciation.
The measure also includes a range of other favors for select industries, including tax breaks for restaurant and retail store improvements.
"This agreement might not be seen as perfect by everyone, but it gives American consumers and businesses the certainty they need to put worries over this issue behind them," said Matthew Shay, president and CEO of the National Retail Federation.
The bi-partisan deal also saved the country from what some were calling the "dairy cliff," which would have resulted in a sharp rise in milk prices. The agreement calls for a nine-month fix for expiring farm subsidy programs by extending a 2008 farm law. That gives lawmakers time to come up with a new five-year replacement. Without the fix, the farm law would have expired and dairy subsidies would have reverted to 1949 levels, meaning retail milk prices could have doubled to about $7 a gallon in the near future, according to Reuters.
At the Convenience Store News 2012 Industry Forecast Council last month, Maureen Maguire, president of economic consulting firm ThinkResearch, predicted politicians would come together to avoid the fiscal cliff. She noted that if nothing was done in Washington, scheduled tax increases and spending cuts equal to 4.25 percent of gross domestic product (GDP) would go into effect.
"If we fall off the cliff, economists agree that there will be a recession in the first half of 2013 and that overall GDP growth will be approximately 1.1 percent for the year," said Maguire, who forecast 1.6 percent growth for 2012.