'Fiscal cliff' plan goes to Republican House

2013-01-01 18:29

Washington - A legislative fix to patch up America's fiscal crisis will be taken up by lawmakers in the Republican-controlled House of Representatives on Tuesday after passing the Senate overnight.

The White House and top Republicans struck a deal after dramatic 11th-hour negotiations to avert huge New Year tax hikes and postpone automatic spending cuts that had threatened to send the US economy back into recession.

If the legislation passes the House as expected, it will represent a win for President Barack Obama as it raises taxes on the richest Americans - albeit above an income threshold higher than he and other Democrats had wanted.

But the victory will be hollow as it fails to tackle the deep spending cuts needed to resolve America's austerity crisis, setting up the prospect of another bitter Washington battle at the start of Obama's second term.

After months of agonising over the crisis, weeks of debate about a possible solution, and days of intense, closed-door bartering, the US Senate voted overwhelmingly 89-8 early Tuesday to pass a controversial bill that averts the so-called "fiscal cliff".

Hiked tax rates

Although the midnight deadline was technically missed, any serious impact on the world's biggest economy will be avoided as long as legislation passes the House of Representatives in the coming days.

Obama issued a statement shortly after the 02:00 (07:00 GMT) Senate vote, urging lawmakers in the Republican-controlled House to "pass it without delay." A vote could come as early as Tuesday.

If the measure is agreed by both chambers of Congress, tax rates will be hiked on households earning over $450 000 a year but remain where they are for everyone else.

While not matching Obama's campaign threshold of $250 000, it would represent a major concession from Republicans who have stuck solidly to a pledge of no higher taxes since then president George HW Bush failed to win re-election in 1992 after breaking a promise not to raise rates.

"While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay," Obama said in his statement.

The deal puts off $109bn in budget cuts across the government for two months, setting the stage for a new showdown between Obama's Democrats and Republicans in dysfunctional Washington at the end of February, just weeks after the president is sworn in for his second term.

Winning over Republicans

Had no deal been struck, experts warned that the fragile US economy could have been sent spinning back into recession due to the $500bn combined whack of spending cuts and tax hikes.

It remains for Republican House Speaker John Boehner to rally his restive conservative coalition around the pact, which will likely need some Democratic votes in the House to pass.

For two decades, Republicans have fought any attempt to raise taxes. So White House officials will see vindication in a deal that enshrines one of Obama's top pledges in his re-election campaign.

In a terse statement, Boehner said his chamber would pick up the legislation if it passed the Senate.

"Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members - and the American people - have been able to review the legislation," he said.

‘Deal better than the alternative’

Democrats suggested that the deal, like many congressional bargains, was not perfect, but that it was preferable to the alternative.

"It's not that this proposal is regarded as great or is loved in any way. But it's a lot better than going over the cliff," Senator Chuck Schumer told reporters.

World stock markets, expected to be thrown into turmoil by a failure to beat the deadline, are closed New Year's Day, so lawmakers have a few extra hours of breathing room to get the deal concluded.

The legislation will also extend tax credits for clean energy firms and unemployment insurance for two million people that had been due to expire.

And it includes an end to a temporary two percent cut to payroll taxes for Social Security retirement savings - meaning all Americans will pay a little more - and changes to inheritance and investment taxes.

Relief seemed to course through the Senate during and after the vote, but both sides were already gearing up for the next legislative showdown, over the need to lift the government's statutory borrowing limit of $16.4trillion, reached on Monday.

The Treasury will take extraordinary measures to keep the government afloat for an undisclosed period of time until the ceiling is raised. Republicans are already demanding spending cuts in return.

That fight will now be doubled as it is likely to coincide with the new deadline for the two-month sequester postponement set up by the fiscal cliff agreement.

  • sean.bagley.50 - 2013-01-01 20:41

    The GOP didn't care about deficit or spending cuts when they were in charge.All they cared about was their own taxes and increased spending and sending the bill to the next Party in the Oval Office. Obama said he would make spending cuts in addition to $1 trillion he's already made into account as to the $4 trillion he'd proposed to the GOP House-led and they'd subsequently rejected. Wall street bankers have created a negative equity market economy by draining all the value out of the taxpayers labor and feeding 2% off in taxbreaks themselves. The GOP didn't want to raise taxes on the rich.The GOP wanted to tie spending cuts into any deal possible.The GOP didn't want extensions in key Democratic favored programs. Wage earners will now see 6.2% increase in payroll tax on earnings up to $113,700 a yr to fund SSI & MediCare.Individuals on $400,000 & $450,000 a yr will see their taxes rise from 36% to 39%. Capital gains & Dividends will rise to 20% up from 15%.Health Care reforms will levy a new surge tax of 3.8% on capital gains for rich Americans.pushing top capital gains to 23.8% rate.Extended unemployment benefits extended to 2 years.

      sean.bagley.50 - 2013-01-01 20:41

      continue... Estate owners tax rate to rise from 35% to 40% for estates valued at $5million or more.Alternative Minimum Tax to guarantee the wealthy pays a minimum Federal income tax regardless of deductions,credits or exemptions is created by the permanent inflation patch. In other words a flat tax rate of between 26% & 28%.Child tax credit,earned income tax and opportunity tax credits extended for 5 years.DocFix Medicare reimbursement rates shielding doctors from the potential 27% cut in their reinbursement. Last but not least,the Sequester delay,i.e. billions of dollars in across-the-board spending cuts when the Debt Ceiling debates gets fully understood. As Michael Hudson used to say:"It's Casino Capitalism at it's best".The $800 billion TARP & the $2trillion "cash for trash" swaps to enable banks to continue their remuneration of the executives and bondholders was hardly a hiccup right.

      Flippncool - 2013-01-01 21:14

      Banks - bunch of crooks.

  • Raymon - 2013-01-02 00:46

    This is the end of the U.S. Obama is going to tank the country and then just walk away. He will suddenly find his REAL birth certificate and move back to Kenia.

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