Last night Congress agreed on a deal to avert the fiscal cliff. If you’re a little hazy on the detail of what that cliff actually was, it’s well worth reading Jonathan’s excellent briefing, while below are the details of last night’s drama, and what we can expect in the weeks and months ahead:

What happened last night?

Congress agreed on legislation which will avert the ‘fiscal cliff’, with a 257-167 vote just after 11pm in the House of Representatives. Out of 236 Republicans, 151, including Majority leader Eric Cantor, voted against the Bill. The Senate had approved the measure the night before by 89 votes to 8.

The US Treasury has also confirmed that the government had hit its $16.4 trillion debt ceiling. Using ‘extraordinary measures’, the Treasury can keep the government running for the next two months.

What does the deal include?

The deal will raise taxes by $41 for every $1 cut from the Budget, according to the Congressional Budget Office.

It extends Bush-era tax cuts on incomes up to $400,000 for individuals and $450,000 for couples. Earnings over those thresholds will be taxed at 39.6 per cent, up from 35 per cent. Similarly, taxes on capital gains and dividend income will increase from 15 per cent to 20 per cent on income exceeding $400,000 for individuals and $450,000 for families.

The top rate of tax on estates will be 40 per cent – up from 35 per cent – with a $5 million exemption for individual estates and $10 million for family estates.

The legislation also indexes the alternative minimum tax for inflation, preventing 30 million families from falling into the tax and facing higher bills of an average of $3,000.

It extends for five years expansions initiated by Obama of the child tax credit, the earned income tax credit an a $2,500 tax credit for college tuition fees. Long-term unemployment benefits get a one year extension, and there will be an end to a 2 percentage point cut in the social security payroll tax, restoring it to 6.2 per cent: this will shrink pay packets for workers immediately.

What it doesn’t include, though is a decision on $109 billion of automatic spending cuts, which has been delayed for another two months.

Who does it hit?

The Tax Policy Center says those earning more than $2.7 million will pay 26 per cent of the additional burden in this legislation, or an average of $443,910 more than in 2012. Those earning between $500,000 and $1 million will pay $14,812 more.

What’s next?

Obama says he will sign the bill into law. But this isn’t the last time you’ll hear of the fiscal cliff. Democratic congressman Jim Moran has already warned that yesterday’s deal will in fact ‘set up three more fiscal cliffs’.

The need to raise the debt ceiling will be the next bargaining chip for the Republicans, who will use it to force Obama to accept cuts to programmes such as Medicare. The crunch point on this will come in February if the government is to avoid a default. Obama has already made positive noises about being ‘very open to compromise’ on issues such as Medicare spending.

But the President also hinted last night that he wanted this sort of brinkmanship to end, saying:

‘The one thing that I think, hopefully, the new year will focus on, is seeing if we can put a package like this together with a little bit less drama, a little less brinkmanship, and not scare the heck out of folks quite as much.’

Tags: Barack Obama, Congress, fiscal cliff, US politics