After President Obama said a deal was "within sight," a tax agreement was evolving in the Senate — but the House acknowledged it would not vote on fiscal measures before the midnight deadline. America, welcome to overboard. Here's how New Year's Eve day played out, and where things stand. Stay tuned to The Atlantic Wire's Cliff Diving on Tuesday for more.
4:55 p.m.: What happens next, now that we're going over the cliff? As for your money: Taxes are going up on income starting Tuesday, but you don't have to file those income taxes for more than 15 months. Congress can retroactively fix that in whatever deal it passes, as Molly Ball explains. The stock market is closed for New Year's Day, and so it won't be able to freak out over it. There's some indication it wouldn't freak out anyway — on Monday, as a deal looked unlikely, the Dow ended 2012 up 7.26 percent, The Wall Street Journal's Neil King notes. As for Washington: The current House is in session until mid-day on January 3. Then the new House comes in, and votes for a speaker — Democrats have accused John Boehner of trying to delay a cliff vote until after he's reelected to that job.
The deal Congress eventually passes will now technically be tax cuts instead of tax hikes. According to multiple news reports, the deal would...
- Make the Bush tax cuts permanent on families making less than $450,000 a year or individuals making less than $400,000 a year.
- Limit tax credits for individuals making $250,000 a year and families making $300,000 a year through the Pease deduction cap and the personal exemption phaseout. These measures increase the marginal tax rate wealthy people pay.
- Make estates worth less than $5 million permanently exempted from the estate tax. But those worth more will be taxed at 40 percent.
- Leave Social Security, Medicare, and Medicaid alone.
- Set the capital gains tax at 15 percent for income under $400,000, and raise it to 20 percent for income above that.
- Extend the American Opportunity Tax Credit, Child Tax Credit, and Earned Income Tax Credit for five years.
3:00 p.m.: Mitch McConnell said on the Senate floor that both sides have agreed on tax rates, so why not just vote on those asap? "I can report we've reached an agreement on all of the tax issues," McConnell said. "Let's pass the tax relief portion now."
He wants to save the sequester for later. "We'll continue to work on finding smarter ways to cut spending but let's not let that hold up protecting Americans."
2:40 p.m.: John McCain did not like Obama's jokey press conference at all. McCain said on the Senate floor:
"What did the President of the United States just do? Well, he kind of made fun – he made a couple of jokes. Laughed about how people are going to be here for New Years. Sent a message of confrontation to the Republicans. I believe he said, 'If they think they’re going to do that, they've got another thought coming.'"
McCain threatened that history would not look kindly upon Obama's presser:
"I guess I have to wonder – and the American people have to wonder – whether the president really wants this issue resolved, or is it to his short term political benefit for us to go over the cliff... I can assure the president, I can assure him, that historians judge presidents on their achievements."
1:55 p.m.: "It appears that an agreement to prevent this New Year's tax hike is within sight but it's not done," Obama said. But he also said he'd be spending New Year's Eve in Washington.
1:52 p.m.: Obama says Republicans want to "shove spending cuts down.... well... you know..." Obama's lively group of middle class American props chuckles.
1:49 p.m.: Obama, with a row of "middle class Americans" occasionally cheering behind him, says he wants to make sure taxes don't go up on the middle class. But they will, as several people noted during Obama's speech. The payroll tax holiday is expiring. Every working person pays that.
1:38 p.m.: Is all this last-minute negotiating for nothing? Rep. Mike Rogers says that even if the Senate gets a deal done today, there's not enough time for the House to pass it, CBS News' Jill Jackson reports. "I just don't see it happening," Rogers said.
1:23 p.m.: The New York Times' John Harwood reports that a tentative deal has been reached. According to Harwood, it looks like this: Joe Biden and Mitch McConnell have agreed the Bush tax cuts will be extended on income under $400,000 for individuals and under $450,000 for couples (income above that will go back to the 90s rate of 39.6 percent.) The estate tax -- which will hit estates worth $1 million or more if we go over the cliff -- will be 40 percent on estates over $5 million. The capital gains tax rate will go to 20 percent.
Obama will speak to "middle class Americans" at 1:30 p.m. Watch here:
1:05 p.m.: Negotiators want to make sure the public thinks they're working hard. Politico's Jay Westcott tweets this photo of Senate Minority Leader Mitch McConnell meeting with senior staffers "behind closed doors."
1:00 p.m.: Ezra Klein has several new details on his Twitter feed about the mini-deal, including the big news that it would permanently patch the Alternative Minimum Tax rule, a fix that currently must be voted on every single year and would cost taxpayers millions if not amended.
12:53 p.m.: The markets seem happy with the current state of things, if that means anything to you.
12:47 p.m.: Progress? Calling the Democrats Senate bluff?
FLASH: Majority of Senate Republicans expected to support tentative "fiscal cliff" deal - senior Republican aide bit.ly/XpLNN3— Reuters Top News (@Reuters) December 31, 2012
12:40 p.m.: President Obama is planning to deliver White House remarks about the cliff, "with middle class Americans" in attendance.
12:25 p.m.: New "sticking point": The delay on the sequester. As Chuck Todd and others reported earlier, the Democratic leaders were looking to delay the automatic spending cuts called for in fiscal cliff. The mini-deal calls for a three-month delay, but some key Democrats are insisting on a one-year delay to take the possibility of another showdown off the table for awhile, especially since there's already one coming on the debt ceiling.
12:06 p.m.: Ezra Kelin of The Washington Post insists that even though the President consistently caved on taxes, when the debt ceiling comes up again in two months he will absolutely not give on that. That time he will really mean it for serious!
11:39 a.m.: The deal may still happen, but looks like nobody, Democrat or Republican, is happy about it:
Well, the more folks on both sides in House and Sen learn about this McConnell- Biden deal, the more they don't like it.#facepalm— Chuck Todd (@chucktodd) December 31, 2012
11:28 a.m.: Slate's Matthew Yglesais argues that letting the fiscal cliff happen maybe wouldn't be the end of the world. (Short version: Ben Bernanke and the Federal Reserve have recently changed course and could step into avert a full recession.)
11:17 a.m.: Bad news from Dana Bash of CNN: Sen. Tom Harkin—a Democrat—is grumbling about the mini-deal and hinting that he (not the House Republicans) might be the one to put a stop to it, saying "No deal is better than a bad deal and this is shaping up to be a bad deal."
New prob.Sequester. Dems saying gop wants 3 month delay. Dems want a year or more bc "that creates another cliff in three months can't pass"— Dana Bash (@DanaBashCNN) December 31, 2012
11:06 a.m.: Harry Reid just gave a brief address on the floor of the Senate. Without providing many details on the negotiations, he said there are "a few issues that need to be resolved before we can bring legislation to the floor."
10:45 a.m.: The latest talk is that the debt ceiling and other spending issues will be put off for a few month (probably until March), in favor of a "mini-deal" on tax rates today.
They are closing in a deal that would extend tax cuts for below $450K, the estate tax, and UI. Also delay sequester cuts for 3 months.— Jonathan Karl (@jonkarl) December 31, 2012
10:31 a.m.: According to Bloomberg TV, Sen. Harry Reid says the income threshold on taxes is the "least of the issues," meaning that problem can be solved in Democrats get something else in return.
10:18 a.m.: Jonathan Chait at New York magazine explains why Obama is caving on taxes and why that has him worried for the future.
10:04 a.m.: CNBC's John Harwood says on air that the Democrats will cave to only raise taxes on incomes above $450,000. IN exchange, the rate on those high incomes will rise all the way to 39.6 percent (the level it was under President Clinton), as well as extension of unemployment benefits and more revenue from the estate tax.
9:53: a.m.: Rumor alert! This one from NBC's Chuck Todd:
The deal that is coming together essentially solves tax issue but postpones the spending debate for debt ceiling in 2-3 months— Chuck Todd (@chucktodd) December 31, 2012
9:30 a.m.: The stock markets are now open for the final trading day of they year and investors seem blissfully unaffected by the looming crisis. Or supremely confident that a deal will be struck.
9:25 a.m.: The AP provides a cheat sheet on the changes that will take effect on January 1 if no deal reached. Not included is the payroll tax holiday, which is not being discussed in the negotiations and will expire tomorrow no matter what. That tax will impact all working Americans and have an immediate effect on their take-home pay.
9:20 a.m.: In non-fiscal cliff news, Congress is also fighting over a $60 billion hurricane relief package to help victims of Sandy. The Senate passed the bill last Friday, but House Republicans are complaining that it wastes money on unrelated areas, offering their own package that's less than half the size of the Senate bill. Majority Leader Eric Cantor says he wasn't "act as soon as possible," but no vote is scheduled before the end of the term, and it's likely to get lost in any last-minute Cliff maneuvering.
9:00 a.m.: When last we left them, Senators were bickering over the income threshold that would be affected rising income tax rates. The president originally asked for $250,000. Republicans came down to $500,000. Now the offers are somewhere between $360,000 or individuals (Democrats) and $450,000 (Republicans.) Politico reports this morning that Vice President Joe Biden has stepped into the impasse, negotiating directly with long-time colleague Senate Minority Leader Mitch McConnell, playing "good cop" to angry Senate Majority Leader Harry Reid's "bad cop." Politico also states that Biden and McConnell have made "major progress" even though Biden hasn't offered anything different from Reid's last proposal. The Senate will reconvene at 11:00 a.m today.