Had the deal not passed Congress, both the White House and bipartisan leaders on Capitol Hill would have had egg on their faces.

The public would have had cause to blame Washington for yet another self-inflicted wound that threatened to send markets into a spiral and put both the US and global economies back into recession.

Republicans would have come in for bigger blame than the president, polls showed, but Mr. Obama, too, would have looked incompetent.

Instead, Obama delivered on his top reelection campaign promise: that the wealthiest taxpayers see an increase in their marginal income-tax rate in 2013. True, his definition of “wealthy” morphed significantly – from $250,000 to $450,000 in annual family income.

Late Tuesday night, after the House passed the bill, Obama persisted in saying that the bill he will sign into law “raises taxes on the wealthiest 2 percent of Americans,” when in reality, it’s more like the wealthiest 0.7 percent.

But those wealthiest taxpayers will see their top rate go back to where it was during the Clinton era – from 35 percent to 39.6 percent. During the negotiations, there had been talk of setting the top rate somewhere in between.

All told, the fiscal-cliff deal produces $620 billion in deficit reduction over 10 years, a down payment on what both sides agree needs to be much more. In the cold light of day, many Republicans disappointed by the tax increase agree that the alternative – no deal – would have been worse.

“The deal to avoid going over the so-called fiscal cliff was a lousy one: tax rate increases during a weak economy, no spending reductions, nothing on entitlement reform,” writes Peter Wehner, a former Bush White House official, on Commentary Magazine online.

“And yet if House Republicans had succeeded in derailing this deal, negotiated between Senator Mitch McConnell and Vice President Joe Biden, it would have been disastrous.”

But Obama’s victory is narrow. And by getting only a partial deal now, he faces a bigger fiscal cliff just a few weeks into his second term. In fact, there will be three cliffs: the deep spending cuts known as the “sequester” that come due (again) in two months the debt ceiling, which will prohibit new federal borrowing without congressional action, also in about two months and the expiration on March 27 of the continuing budget resolution – the short-term deal passed Oct. 27 that allows the federal government to keep spending money.

Those three anvils hanging over Washington’s head are likely to consume attention as the deadlines approach, creating a distraction from other matters Obama might want to address after his second inauguration on Jan. 21 – starting with gun violence and immigration reform.

Typically, reelected presidents begin their second terms with a bit of fresh political capital in the bank and about an 18-month window in which to accomplish anything. Fiscal matters could easily deplete Obama’s balance. And with each passing month, Congress becomes increasingly concerned about midterms – particularly House members, who face reelection every two years, and the one-third of the Senate that is up for reelection.

Immigration reform could be an exception: Republicans face a crisis in their declining Hispanic support, and the issue has shot to the top of their agenda. That, coupled with Obama’s longstanding pledge to enact comprehensive reform, could mean action, almost regardless.  

But Obama has other fiscal-cliff negatives to overcome. He may, for example, pay a price for the pep rally he held next door to the White House on Dec. 31 in an auditorium packed with middle-class taxpayers. The event was meant to demonstrate, once again, his commitment to average Americans in making sure their taxes didn’t go up at midnight that night.

But it infuriated Republicans at the other end of Pennsylvania Avenue, and likely reduced any good feeling from the deal Mr. Biden cut with Senator McConnell (R) of Kentucky, the Senate minority leader.

Some analysts have suggested that Biden’s prominent role in solving the immediate fiscal cliff crisis, after Obama’s negotiations with House Speaker John Boehner came to naught, hurt Obama’s image as a leader. That may be true, but at least, it can argued, he deserves credit for his decision in 2008 to make Biden his running mate and place at his side an experienced Senate hand who could jump into the breach at just such a moment.  

It was the Biden-McConnell deal – which passed the Senate by a lopsided 89-to-8 vote early Tuesday morning – that created the momentum necessary to keep enough House members (of both parties) in line to pass the bill late Tuesday.

What a great way to start the year.

First the scoreboard:

Dow: 13,412, +308.0, +2.3 percent
S& P 500: 1,462, +36.7, +2.5 percent
NASDAQ: 3,112, +92.2, +3.0 percent

And now the top stories:

> So, we finally got a fiscal cliff deal.  Congress worked through the wee hours of New Year's Eve into the crack of New Year's Day.  And last night, the House approved the deal, which among other things raises tax rates on individuals earning more than $400k and households earning more than $450.

> There's little doubt that the deal was behind the huge rally in the markets.  However, there was also some strong economic data to reinforce optimism in the U.S. economy.

> The U.S. manufacturing purchasing managers index (PMI) jumped to 54.0 in December, according to Markit.  This was up from 52.8 in November.  Economists were looking for a reading of 53.6.  " Firms are also taking on more staff, suggesting that the underlying improvement in demand pushed any worries about the ‘fiscal cliff’ to backs of manufacturers’ minds in the closing weeks of the year," said Markit Chief Economist Chris Williamson.

> The ISM Manufacturing index, which offers a similar glimpse into the U.S. manufacturing sector, also surprised to the upside.  The headline number grew to 50.7 from 49.5 in November.  Economists were looking for a reading of 50.4.  From the report: " The Employment Index registered 52.7 percent, an increase of 4.3 percentage points, indicating a resumption of growth in employment following only one month of contraction since September 2009. Both the Exports and Imports Indexes registered 51.5 percent, returning both indexes to growth territory following consecutive periods of contraction of six and four months, respectively."

> Now that we have some fiscal cliff clarity, Wall Street is ratcheting up their forecasts for the S& P 500.  In a new note to clients, Deutsche Bank's David Bianco boosted his year-end target to 1,575 from 1,500.

> One big are of weakness today was natural gas, which plunged by over 4 percent.  New forecasts for a warm winter doesn't bode well for the heating commodity.

Will the Dow Soar or Plunge in 2013?

Democratic officials: Fiscal 'cliff' deal reached

WASHINGTON —

Racing the clock, the White House sealed a New Year's Eve accord with Senate Republicans late Monday to neutralize across-the-board tax increases and spending cuts in government programs due to take effect at midnight, according to administration and Democratic officials.

Under the deal, taxes would remain steady for the middle class and rise at incomes over $400,000 for individuals and $450,000 for couples - levels higher than President Barack Obama had campaigned for in his successful drive for a second term in office.

Spending cuts totaling $24 billion over two months aimed at the Pentagon and domestic programs would be deferred. That would allow the White House and lawmakers time to regroup before plunging very quickly into a new round of budget brinkmanship certain to revolve around Republican calls to rein in the cost of Medicare and other government benefit programs.

Officials also decided at the last minute to use the measure to prevent a $900 pay raise for lawmakers due to take effect this spring.

Even by the dysfunctional standards of government-by-gridlock, the activity at both ends of historic Pennsylvania Avenue was remarkable as the administration and lawmakers spent the final hours of 2012 haggling over long-festering differences.

" One thing we can count on with respect to this Congress is that if there's even one second left before you have to do what you're supposed to do, they will use that last second," the president said in a mid-afternoon status update on the talks.

As darkness fell on the last day of the year, Obama, Biden and their aides were at work in the White House, and lights burned in the House and Senate. Democrats complained that Obama had given away too much in agreeing to limit tax increases to incomes over $450,000, far above the $250,000 level he campaigned on. Yet some Republicans recoiled at the prospect of raising taxes at all.

Democratic senators said they expected a post-midnight vote on the measure. They spoke after a closed-door session with Vice President Joseph Biden, who brokered the deal with Senate Republican leader Mitch McConnell.

" The argument is that this is the best that can be done on a bipartisan basis," said Sen. Dianne Feinstein, D-Calif., when asked about the case the vice president had delivered behind closed doors.

Passage would send the measure to the House, where Speaker John Boehner, R-Ohio, refrained from endorsing a package as yet unseen by his famously rebellious rank-and-file. He said the House would not vote on any Senate-passed measure " until House members - and the American people - have been able to review" it.

Numerous GOP officials said McConnell and his aides had kept the speaker's office informed about the progress of the talks.
The House Democratic leader, Rep. Nancy Pelosi of California, issued a statement saying that when legislation clears the Senate, " I will present it to the House Democratic caucus."

Without legislation, economists in and out of government warned of a possible recession if the economy were allowed to fall over a fiscal cliff of tax increases and spending cuts.

And while the nominal deadline for action passed at midnight, Obama's signature on legislation by the time a new Congress takes office at noon on Jan. 3, 2013 - the likely timetable - would eliminate or minimize any inconvenience for taxpayers.

A late dispute over the estate tax produced allegations of bad faith from all sides.

After hours of haggling, Biden headed for the Capitol to brief the Democratic rank and file.

Earlier, McConnell had agreed with Obama that an overall deal was near. In remarks on the Senate floor, he suggested Congress move quickly to pass tax legislation and " continue to work on finding smarter ways to cut spending" next year.

The White House and Democrats initially declined the offer, preferring to prevent the cuts from kicking in at the Pentagon and domestic agencies alike. A two-month compromise resulted.

Officials in both parties said the agreement would prevent tax increases at incomes below $400,000 for individuals and $450,000 for couples.

At higher levels, the rate would rise to a maximum of 39.6 percent from the current 35 percent. Capital gains and dividends in excess of those amounts would be taxed at 20 percent, up from 15 percent.

The deal also would also raise taxes on the portion of estates exceeding $5 million to 40 percent. At the insistence of Republicans, the $5 million threshold would rise each year with inflation.

Much or all of the revenue to be raised through higher taxes on the wealthy would help hold down the amount paid to the Internal Revenue Service by the middle class.

In addition to preventing higher rates for most, the agreement would retain existing breaks for families with children, for low-earning taxpayers and for those with a child in college.

Also, the two sides agreed to prevent the alternative minimum tax from expanding to affect an estimated 28 million households for the first time in 2013, with an average increase of more than $3,000. The law originally was designed to make sure millionaires did not escape taxes, but inflation has gradually exposed more and more households with lower earnings to its impact.

The legislation leaves untouched a scheduled 2 percentage point increase in the payroll tax, ending a temporary reduction enacted two years ago to help revive the economy.

Officials said the White House had succeeded in gaining a one-year extension of long-term unemployment benefits about to expire on an estimated two million jobless.

It was unclear whether the legislation would prevent a 27 percent cut in fees for doctors who treat Medicare patients was unknown.

Also included is a provision to prevent a threatened spike in milk prices after the first of the year.

Even as time was running out, partisan agendas were evident.

Obama used his appearance not only to chastise Congress, but also to lay down a marker for the next round of negotiations early in 2013, when Republicans intend to seek spending cuts in exchange for letting the Treasury to borrow above the current debt limit of $16.4 trillion.

" Now, if Republicans think that I will finish the job of deficit reduction through spending cuts alone - and you hear that sometimes coming from them ... then they've got another think coming. ... That's not how it's going to work at least as long as I'm president," he said.

" And I'm going to be president for the next four years, I think," he added. Obama's remarks irritated some Republicans.
Sen. John McCain of Arizona they would " clearly antagonize members of the House."

Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
 
Associated Press writers Julie Pace, Andrew Taylor, Alan Fram and Ben Feller contributed to this report.

Read more here: http://www.islandpacket.com/2012/12/31/2327565/obama-says-fiscal-cliff-deal-close.html#storylink=cpy