Senate approves 'fiscal cliff' deal, sends it to House

Agreement would delay spending cuts, immediate economic impact in Md. likely small

January 01, 2013|By Lisa Mascaro, Kathleen Hennessey, Michael A. Memoli and John Fritze, Tribune Newspapers

WASHINGTON — — Hours before a midnight deadline Monday, the White House reached a tentative deal with Congress to stop an enormous tax hike for all but the wealthiest households and to postpone for two months tough decisions on how to cut federal spending.

After a rare holiday session that lasted through the New Year's Eve celebration and two hours into New Year's Day, the Senate voted, 89 to 8, to approve the proposal. Republican leaders in the House had balked at holding a vote in the dark of night, but are expected to bring the bill up later Tuesday.

The House, where GOP lawmakers have been resistant to voting for a tax increase, will now determine whether the nation's plunge off the fiscal cliff is halted. As long as Congress is seen to be working toward a solution, no dire economic fallout is expected from the delay.

The deal would represent a milestone for Republicans, whose anti-tax stance has defined the party since then-President George H.W. Bush in 1990 broke his promise not to raise taxes. Republicans have not supported an effort to increase income taxes since then.

It also would be a concession for Democrats who backed away from President Obama's popular campaign pledge that he would ask households earning more than $250,000 to pay more in taxes. Under the deal with Republicans, taxes will increase only on households earning more than $450,000.

The deep automatic spending cuts scheduled to begin Wednesday — the other part of the "fiscal cliff" — would be pushed back just long enough to ensure that the partisan budget battles marking Obama's first term will also punctuate the beginning of his second. Negotiations over the cuts were expected to be rolled into talks about extending the nation's debt ceiling, a prospect Democrats promised to resist.

For Maryland, the Senate proposal would, for now, avoid potentially harmful spending cuts known as sequestration, but it would require lawmakers to revisit the issue in a few months — prolonging the uncertainty federal contractors and government employees in the state have been dealing with all year.

Asked about the possibility of a two-month delay of sequestration — an idea that arose Monday — Sen. Ben Cardin said it would be better than facing the cuts right now, but that kicking the nation's fiscal problems off to the next Congress, which begins Thursday, is far from ideal.

"I'm disappointed," the Maryland Democrat said in an interview. "We've already been impacted by the potential for sequestration. … A two-month extension is better than hitting a wall — but it's still bad news."

The $110 billion in cuts called for would be particularly painful in Maryland, given its proximity to Washington. Maryland is home to nearly 300,000 federal workers. Social Security, the National Institutes of Health and the National Security Agency are among the many agencies based in the state.

Private government contractors in Maryland, meanwhile, were awarded about $27 billion in work last year — among the highest per capita in the nation.

Gov. Martin O'Malley said congressional delay is complicating his administration's decision-making as it heads into the 2013 session of the General Assembly next week.

"It certainly casts a much greater degree of uncertainty over our planning," said O'Malley, a Democrat.

If the budget issues are not quickly resolved, O'Malley said, the state may have to increase the amount of money it allocates to its Rainy Day Fund — raising it above the 5 percent of the state's budget that is recommended by bond rating agencies.

O'Malley, who blamed the difficulty in reaching a deal on congressional Republicans, said Maryland and its neighbors are especially vulnerable to the defense and domestic budget cuts that would come with sequestration.

"Our region — Maryland and Virginia and D.C. — certainly stand to suffer greater harm than other regions of the country because of the federal presence and federal installations of health and security," he said.

The normally festive time of year fell serious Monday as details of the deal emerged. Vice President Joe Biden, who brokered the deal in marathon sessions with Mitch McConnell, the Senate's Republican minority leader, was dispatched to the Capitol for an intense 90-minute session with Democrats.

Going off the so-called cliff may not be as disastrous as once envisioned, if lawmakers quickly pass legislation to fix it. And it could also have political benefits.

Pushing the votes to Tuesday accomplished a political back flip that would be particularly advantageous for anti-tax Republicans and has been discussed for months.

With the existing tax rates expiring at midnight Monday, Tuesday ushered in the new higher rates. If Congress acted Tuesday, the votes would be to lower tax rates on wealthier Americans, rather than raise them.

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