Administration officials like Vice President Joe Biden then worked to convince wary Democratic members of Congress to accept the plan, notwithstanding a continuation of lower rates for the highest-income taxpayers.^{Joe Biden then worked to convince wary Democratic members of Congress to accept the plan, notwithstanding a continuation of lower rates for the highest-income taxpayers.^[52] The compromise proved popular in public opinion polls, and allowed Obama to portray himself as a consensus-builder not beholden to the liberal wing of his party.^[53] The bill was opposed by some of the most conservative members of the Republican Party as well as by talk radio hosts such as Rush Limbaugh and some groups in the Tea Party movement.^[53][54] It was also opposed by several leading potential candidates for the Republican nomination in the 2012 presidential election, including Mitt Romney,^[53] typically on the grounds that it did not make the Bush tax cuts permanent and that it would overall increase the national deficit.^[55]}

In an interview during these debates, former President Bush said, "I wish they would have called it something other than the 'Bush tax cuts'. There'd probably be less angst amongst some to pass it."^[56] He argued strongly for maintaining the rates: "I do believe it's very important to send the signal to our entrepreneurs and our families that the government trusts them to spend their own money. And I happen to believe lower taxes is what stimulates economic growth and what we need now in our country is economic growth."^[56]

On December 15, 2010, the Senate passed the compromise package with an 81–19 vote, with large majorities of both Democrats and Republicans supporting it.^[56] He argued strongly for maintaining the rates: "I do believe it's very important to send the signal to our entrepreneurs and our families that the government trusts them to spend their own money. And I happen to believe lower taxes is what stimulates economic growth and what we need now in our country is economic growth."^[56]

On December 15, 2010, the Senate passed the compromise package with an 81–19 vote, with large majorities of both Democrats and Republicans supporting it.^[57] Near midnight on December 16, the House passed the measure on a vote of 277–148, with only a modest majority of Democrats but a large majority of Republicans voting for the package.^[58][59] Before that, an amendment put forward by Democratic Representative Earl Pomeroy and the progressives among the Democratic caucus to raise the estate tax, which was the ultimate sticking point of the deal for them and the cause of a minor revolt among those against it, failed on a 194–233 vote.^[53][58][60] The Washington Post called the approved deal "the most significant tax bill in nearly a decade."^[59] President Barack Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, on December 17, 2010.

The "fiscal cliff" refers to December 31, 2012, the date of the expected implementation of government spending reductions and expiration of a large number of tax cuts, many of which were the tax cuts enacted under George W. Bush and extended by President Obama. In a report released in May 2012, the Congressional Budget Office (CBO) In addition to the government spending reductions and tax cuts, increases in costs from the Patient Protection and Affordable Care Act were slated to take effect, as well.^[61] The CBO predicted that these policy changes could lead to reduced economic growth, significant enough to be considered a recession, although the 2013 deficit would be cut roughly in half and the debt trajectory over the next decade would be significantly improved.^[62][63]

The increase in tax rates that was due to occur had been described by Republicans including House Speaker John Boehner, House Majority Leader Eric Cantor and Senate Republican Leader Mitch McConnell as the largest in U.S. history, although the U.S. would be returning to Clinton-era tax rates. According to the Associated Press, the increase would be the second largest after the tax increase of 1942, if population growth, increased pay and the size of the economy are taken into account.^[62]

Based on figures from the CBO and Joint Committee on Taxation, federal taxes would have increased by a total of $423 billion in 2013, if the tax cuts had been allowed to expire.^[62] The non-partisan Tax Policy Center estimated that for 83% of households in the U.S., there would be an average tax increase of $3,701^[64] and The Heritage Foundation stated that those impacted by the tax cut expiry are primarily in the middle- and low-income groups, with its research finding that families would experience an average tax increase of $4,138.^[65]

According to the Center on Budget and Policy Priorities, the expiration of the Bush income tax rates (i.e., returning to Clinton-era rates) would have affected higher income families more than lower income families. The Bush tax cuts reduced income taxes for those earning over $1 million by $110,000 per year on average during the 2004–2012 period. The tax cuts made the tax system less progressive. From 2004 through 2012, the tax cuts increased the after-tax income of the highest-income taxpayers by a far larger percentage than they did for middle- and low-income taxpayers. During 2010 for example, the tax cuts increased the after-tax income of people making over $1 million by more than 7.3%, but increased the after-tax income of the middle 20% of households by just 2.8%^{The increase in tax rates that was due to occur had been described by Republicans including House Speaker John Boehner, House Majority Leader Eric Cantor and Senate Republican Leader Mitch McConnell as the largest in U.S. history, although the U.S. would be returning to Clinton-era tax rates. According to the Associated Press, the increase would be the second largest after the tax increase of 1942, if population growth, increased pay and the size of the economy are taken into account.[62]}

Based on figures from the CBO and Joint Committee on Taxation, federal taxes would have increased by a total of $423 billion in 2013, if the tax cuts had been allowed to expire.^[62] The non-partisan Tax Policy Center estimated that for 83% of households in the U.S., there would be an average tax increase of $3,701^[64] and The Heritage Foundation stated that those impacted by the tax cut expiry are primarily in the middle- and low-income groups, with its research finding that families would experience an average tax increase of $4,138.^[65]

According to the Center on Budget and Policy Priorities, the expiration of the Bush income tax rates (i.e., returning to Clinton-era rates) would have affected higher income families more than lower income families. The Bush tax cuts reduced income taxes for those earning over $1 million by $110,000 per year on average during the 2004–2012 period. The tax cuts made the tax system less progressive. From 2004 through 2012, the tax cuts increased the after-tax income of the highest-income taxpayers by a far larger percentage than they did for middle- and low-income taxpayers. During 2010 for example, the tax cuts increased the after-tax income of people making over $1 million by more than 7.3%, but increased the after-tax income of the middle 20% of households by just 2.8%^[66]

A report from the CBO^[67] concluded that extending the tax cuts and spending policies would lead to federal debt increasing from 73% in 2012 to over 90% of U.S. gross domestic product by 2022, but that the debt-to-GDP ratio would decline to 61% in 2022 if the tax cuts expired and scheduled spending cuts took place. The CBO concluded that

The explosive path of federal debt under the alternative fiscal scenario underscores the need for large and timely policy changes to put the federal government on a sustainable fiscal course. Policymakers will need to increase revenues substantially above historical levels as a percentage of GDP, decrease spending significantly from projected levels, or adopt some combination of those two approaches. In fact, the current laws that underlie CBO's baseline projections provide for significant changes of those kinds in coming years; many other approaches to constraining future deficits are possible as well.

The expira

The expiration of the tax rate cuts was opposed by Republicans including those on the House Ways and Means Committee, which attempted to produce a bill providing for a one-year extension that would ensure that federal tax rates for all income levels, capital gains, dividends and estate taxes would remain the same. The bill would have also retained tax credits including the child tax credit but would propose ending the current payroll-tax cut.^[68] The Democratic-majority Senate was in favor of extending the tax cuts only on that portion of household income below $250,000 per year.^[69][70]

On January 1, 2013, the Bush Tax Cuts expired. However, on January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012, which reinstated many of the tax cuts, effective retroactively to January 1. The 2012 Act did not repeal the increase in the highest marginal income tax rate (from 35% to 39.6%) which had been imposed on January 1 as a result of the expiration of the Bush Tax Cuts.

See also