Fiscal deal ‘will keep US out of recession for now’

2013-01-01 11:10

Washington – A deal worked out by US Senate leaders to avoid the “fiscal cliff” could help the country steer clear of recession, although enough austerity would remain in place to likely keep the economy growing at a lacklustre pace.

The Senate approved a last-minute deal early today to scale back $600 billion (R5.076 trillion) in scheduled tax hikes and government spending cuts that economists widely agree would tip the economy into recession.

The deal would hike taxes permanently for household incomes over $450 000 (R3.8 million) a year, but keep existing lower rates in force for everyone else.

It would make permanent the alternative minimum tax “patch” that was set to expire, protecting middle-income Americans from being taxed as if they were rich.

Scheduled cuts in defence and non-defence spending were simply postponed for two months.

Economists said that if the emerging package were to become law, it would represent at least a temporary reprieve for the economy. “This keeps us out of recession for now,” said Menzie Chinn, an economist at the University of Wisconsin-Madison.

The contours of the deal suggest that roughly one-third of the scheduled fiscal tightening could still take place, said Brett Ryan, an economist at Deutsche Bank in New York.

That is in line with what many financial firms on Wall Street and around the world have been expecting, suggesting forecasts for economic growth of around 1.9% for 2013 would likely hold.

At midnight yesterday, low tax rates enacted under then-President George W. Bush in 2001 and 2003 expired. If the House of Representatives agrees with the Senate – and there remained considerable doubt on that score – the new rates would be extended retroactively.

Otherwise, together with other planned tax hikes, the average household would pay an estimated $3 500 (R29 610) more in taxes, according to the Tax Policy Center, a Washington think tank. Budget experts expect the economy would take a hit as families cut back on spending.

Provisions in the Senate bill would avoid scheduled cuts to jobless benefits and to payments to doctors under a federal health insurance programme.

Join the conversation! encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions. publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24


Rugby World Cup 2015

All the action from the 2015 RWC, including live coverage of all 48 matches, breaking news, fixtures, results, logs - and much more!


Rugby World Cup 2015

Boks want to continue upward curve
We'll do it our way - Les Bleus
Ton-up Giteau defies his own expectations
The game of Heyneke’s life
Traffic Alerts

You may find it hard to focus on the mundane routines as the greener pastures seem so tempting. It is a good time to expand more

There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.