US Congress resolves 'fiscal cliff' drama

Thursday 03 January 2013 11.49
Barack Obama says he has fulfilled his re-election promise to raise taxes on top earners
Barack Obama says he has fulfilled his re-election promise to raise taxes on top earners

Politicians in the United States have approved a deal preventing huge tax increases and spending cuts that would have pushed its economy off the "fiscal cliff" into recession.

By a vote of 257 to 167, the Republican-controlled House of Representatives approved a bill that fulfils President Barack Obama's re-election promise to raise taxes on top earners.

The Senate had previously passed the measure in a rare New Year's Day session and Mr Obama said he will sign it into law shortly.

Technically, the legislation was passed too late to halt $600bn worth of automatic spending cuts and tax rises coming into force on New Year's Day.

However, the bill passed last night will be backdated.

Other bruising budget battles lie ahead in the next two months.

Speaking shortly after the vote, Mr Obama said he hoped future deals would "not scare the heck out of folks quite as much".

At the same time, he told Republicans that he expected them to approve an increase in the US's borrowing authority without the brinkmanship that has marked other showdowns.

"While I will negotiate over many things, I will not have another debate with this Congress about whether or not they should pay the bills they have already racked up," he said.

The vote was a reversal for House Republicans, who were in disarray despite winning deep spending cuts in earlier budget fights.

However, they saw their leverage slip away this time when they were unable to unite behind any alternative to Mr Obama's proposal.

House Speaker John Boehner and other Republican House leaders stayed silent during the debate on the floor, an unusual move for a major vote.

Mr Boehner backed the deal, but most of his Republican colleagues voted against it.

He could now face a backlash when he asks them to re-elect him as House speaker tomorrow.

The deal shatters two decades of Republican anti-tax orthodoxy by raising rates on the wealthiest, while making cuts for everybody else permanent.

Income tax rates will now rise on families earning more than $450,000 per year and the amount of deductions they can take to lower their tax bill will be limited.

Low temporary rates that have been in place for the past decade will be made permanent for less-affluent taxpayers, along with a range of targeted tax breaks put in place to fight the 2009 economic downturn.

However, workers will see up to $2,000 more taken out of their pay cheques annually with the expiration of a temporary payroll tax cut.

Planned cuts of $109bn to domestic and military programmes were put off for two months.

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