Obama warned that there could be consequences if there was not an agreement on the debt ceiling. Crisis averted: Cliff bill clears

Washington just barely avoided plummeting off the fiscal cliff.

With a rare late-night vote on New Year’s Day, the House passed a bipartisan compromise to extend the majority of Bush-era tax cuts, delay automatic spending reductions for two months and fix a number of expiring tax and spending provisions. The final vote was 257-157, passing with 172 Democrats and 85 Republicans.


( Also on POLITICO: The eight senators who voted ‘no’ on cliff deal)

The climactic final vote capped a wild, topsy turvy few days of action on Capitol Hill that exhibited both savvy deal making and the paralysis that has marked the entirety of the 112th Congress. In the final analysis, Republicans were forced to swallow the first major tax increase in two decades, and Barack Obama was able to at least partially fulfill a campaign promise of raising taxes on upper income Americans.

Democrats counted legislative victories in extending unemployment benefits, Obama’s stimulus tax cuts and exacting higher marginal income rates on high earners. Republican victories included a permanent fix to the alternative minimum tax and estate tax.

( PHOTOS: 15 side effects of going over the cliff)

Speaker John Boehner (R-Ohio), who struggled to sell the deal to conservatives, could not conjure up support from a majority of Republicans who refused to support a tax hike.

And in the clearest sign of a split in House Republican leadership, Boehner cast a rare vote in favor of the bill, while Majority Leader Eric Cantor (R-Va.) and Majority Whip Kevin McCarthy (R-Calif.) opposed the measure. House Budget Chair Paul Ryan (R-Wis.) voted for the accord.

Obama said Tuesday night he would sign the bill, as what he hoped will be part of an eventual larger agreement on new revenue and budget cuts.

( Also on POLITICO: Obama's statement on fiscal cliff deal)

“We all recognize that this law is just one step in the broader effort to strengthen our economy and broaden opportunity for everybody,” Obama said late Tuesday at the White House. “Unfortunately, there just wasn’t enough support for that kind of large agreement in a lame duck session of Congress.”

However, he warned Congress that there could be “catastrophic” consequences for the global economy if there was not an agreement reached on the debt ceiling.

“While I will negotiate over many things, I will not have another debate with this Congress over whether they should pay the bills for what they’ve racked up,” Obama said. “We can’t not pay bills that we’ve already incurred.”

The vote came just in time before further damage was done to the nation’s economic confidence — there was concern that the world’s financial markets would be spooked by Washington inaction when markets reopen Wednesday.

( Also on POLITICO: Dems win key tax fight)

The tax and spending package is also notable for what it doesn’t do: It doesn’t address the debt limit, entitlement reform or deficit reduction in any significant way. Those battles lie just two months ahead, when Congress will debate raising the nation’s borrowing authority.

In addition to raising tax rates on annual family income above $450,000, the bill delays deep across-the-board spending cuts for two months, cancels pay raises for members of Congress and averted a hike in milk prices by extending expiring dairy policy.

The deal would also prevent rate cuts to doctors who treat Medicare patients. Dividends and capital gains on family income above $450,000 would be taxed at 20 percent, up from the current 15 percent rate.

( Also on POLITICO: Obama’s legacy trap)

There were many moments throughout the day Tuesday where it looked like Republican opposition would torpedo the bill.

The biggest threat was a House GOP proposal to amend the Senate version of the tax bill — passed 89-8 at 2 a.m. on New Year’s Day — by adding spending cuts. But if the Senate version had been amended as many House Republicans wanted, it would’ve prolonged the drama as Senate Democrats had no plans to take up the bill again.

And if the House had stalled, the nation’s recovering economy could have been rattled by hiking tax rates on all Americans and maintaining steep federal spending cuts.

Up until Tuesday evening when the final vote was set, the outcome remained uncertain as Boehner faced a revolt among conservatives who were facing a daunting choice: Push the nation further over the fiscal cliff or swallow a tax hike deal they hated — and without spending cuts they covet.

After House Republicans threatened inaction on the Senate bill, Boehner offered to allow his colleagues to amend it before permitting action on the Senate measure. The move was classic Boehner — he said he wanted the House Republican Conference to work its will, and he let the 241 members decide the fate of tax rates for all Americans.

They worked their will — and realized any changes to the Senate bill would fall short.

“The Speaker and the [House Majority] Leader both cautioned members about the risk in such a strategy. They told them there is no guarantee the Senate would act on it,” a leadership aide said.

On the Senate side, leaders stayed relatively quiet while the House went through its chaotic, soul searching process that led to the final vote. When Senate Majority Leader Harry Reid (D-Nev.) closed the Senate Tuesday evening, he didn’t even address the House situation.

“Everyone’s just as tired as I am, I’m sure,” Reid said. “So I appreciate very much the hard work. And we hope tomorrow will go well.”

House Republicans’ major qualm with the Senate bill was that it lacked sufficient spending cuts. House Republican concern over the bill emerged at a Tuesday afternoon conference meeting in the Capitol basement where opposition was overwhelming, sources inside the room said.

In a sign of trouble, Cantor, No. 2 in House leadership, opposed the package earlier in the day.

An analysis by the Congressional Budget Office released Tuesday didn’t help — estimating it would add $4 trillion to the deficit over a decade. Many lawmakers were also concerned about the proposed two-month delay to automatic spending cuts known as the sequester. Several lawmakers suggested that removing so-called extenders — business tax provisions — could help lessen the cost.

Boehner seemed to recognize the precarious position of his conference. He opened the GOP meeting Tuesday afternoon by pointing to the overwhelming Senate vote and telling lawmakers that they can’t add “poison pills” to the legislation — in other words, amending it in a way that would be roundly rejected by the Senate. Boehner suggested spending reductions from the president’s budget to offset the sequester delay.

Even as they lurched toward final passage, House Republicans grumbled about the Senate’s 2 a.m. New Year’s morning passage of the bill.

Retiring Rep. Steve LaTourette (Ohio) asked House Republicans why the House would “heed the votes of sleep-deprived octogenarians,” according to a source in the meeting.

There was also some regret among Republicans about the party defeating Boehner’s “Plan B” before the holidays, which would have raised taxes on millionaires.

Defeated California Rep. Dan Lungren said at the meeting that “we harmed ourselves by undercutting our leader on Plan B,” according to a source present.

House Democrats, for their part, had little problem finding unity on the deal.

They met with Vice President Joe Biden in the Capitol at 12:15 p.m. It was Biden’s second appearance in the Capitol in as many days, after meeting with Senate Democrats late Monday before they passed his tax package.

(Also on POLITICO: The eight senators who voted ‘no’ on cliff deal)

(PHOTOS: 11 side effects of going over the cliff)

The final deal was really the product of the old Mitch McConnell-Biden alliance.

Biden served as the conduit to the president and Democratic congressional leaders, while McConnell did the same for Republicans. It was the third year in a row that they played an instrumental role in a major policy battle — in 2010, they hashed out a tax deal, and in 2011, they coordinated the debt limit agreement.

— Seung Min Kim, Manu Raju, Kate Nocera and John Bresnahan contributed to this report

CORRECTION: Corrected by: Vivyan Tran @ 01/01/2013 09:07 AM Correction: This story has been corrected to show that Sen. Tom Carper of Delaware was a “no” vote.