1 Jan 2013

US Senate passes deal to avoid tax hikes

10:00 pm on 1 January 2013

The US Senate has approved a deal on taxes in an effort to avert tax hikes and spending cuts known as the "fiscal cliff".

The bill to raise taxes for the wealthy came after lengthy talks between Vice-President Joe Biden and Senate Republicans.

The BBC reports the House of Representatives is due to consider the bill later. It needs the approval of both houses to become law.

Congress missed the midnight deadline to approve it, but Tuesday is a US public holiday and no immediate effects will be felt.

Analysts say if the effects of the fiscal cliff are allowed to take hold, the resulting reduction in consumer spending could spark a new US recession.

But if a bill passes both the Senate and the House over the new year holiday, the impact is likely to be minimal.

The compromise deal extends the tax cuts for Americans earning under $400,000 - up from the $250,000 level Democrats had originally sought.

A huge spending cut that would see $1.2 trillion cut from the federal budget over 10 years has been deferred for two months, allowing Congress and the White House to reopen negotiations on a wider deal.

Overnight the Senate overwhelmingly approved the compromise bill by 89-8. The House of Representatives is due to consider it, although no vote has been scheduled so far.

President Barack Obama has urged the House of Representatives to pass the measure without delay.

He said the agreement would allow the economy to grow as the country's deficit shrank, by investing in the middle class while asking the wealthy to pay a little more.