In a 257-167 vote late last night, 172 Democrats and 85 Republicans in the House of Representatives voted in favor a narrowly-focused legislative packaged passed by the U.S. Senate on Monday to raise tax rates back to Clinton-era levels on individuals earning more than $400,000 per year and couples earning over than $450,000.
The fiscal cliff deal also extended unemployment insurance and delayed for two months a series of automatic cuts in federal spending known as the “sequester.”
The stock market jumped 260 points or more than 2% in early trading as the business world reacted positively to the news that the fiscal cliff had been avoided.
“If our nation had been allowed to go over the fiscal cliff, the consequences would have been devastating for businesses and consumers alike,” noted Matthew Shay, president and CEO of the National Retail Federation, in a statement.
“With the economy still recovering, taking hundreds of billions of dollars out of consumers’ hands was a risk we could not afford to take,” he stressed. “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.”
NRF Chief Economist Jack Kleinhenz noted that if the tax hikes and spending cuts that made up the fiscal cliff had been allowed to go through, retails sales in 2013 would have been flat for the year, with negative growth in the first half of the year.
Still, many long-term issues remain, cautioned NRF’s Shay, as the fiscal cliff was only the first of several fiscal challenges Congress and the White House must solve this year.
“The Administration and Congress did what was politically easy but will soon have to return to deal with issues that are economically critical if we are to sustain a growing and vibrant economy,” he explained. “Congress and the White House still need to develop long-term plans dealing with tax reform and other fiscal issues. We have avoided the immediate crisis, but there’s much more to be done before our economy is fully restored.”
Indeed, Erskine Bowles and Alan Simpson – co-founders of the Campaign to Fix the Debt and the chairmen of the deficit-reduction panel President Obama formed early in his first term – noted that the fiscal cliff deal passed today “is truly a missed opportunity” to do something big to reduce the nation’s long term fiscal problems.
“We have all known for over a year that this fiscal cliff was coming. In fact Washington politicians set it up to force themselves to seriously deal with our nation's long term fiscal problems,” they said. “Our leaders must now have the courage to reform our tax code and entitlement programs such that we stabilize our debt and put it on a downward path as a percent of the economy.”