2 Jan 2013

Obama praises 'fiscal cliff' deal

6:40 pm on 2 January 2013

US President Barack Obama has hailed a deal reached to stave off a "fiscal cliff" of drastic taxation and spending measures as "just one step in the broader effort to strengthen the economy".

He was speaking after the House of Representatives passed a Senate-backed bill by 257 votes to 167.

It raises taxes for the wealthy and delays spending cuts for two months.

There had been intense pressure for the vote to be passed before financial markets reopened on Wednesday.

Some House Republicans had wanted to amend the bill to add more spending cuts, but dropped this idea.

The bill, which raises taxes for the wealthy, had been passed in the Senate in the early hours of Tuesday by 89 votes to eight after lengthy talks between Vice-President Joe Biden and Senate Republicans.

The BBC reports spending cuts have been delayed for two months to allow a wider agreement.

The "fiscal cliff" measures - cutting spending and increasing taxes dramatically - came into effect at midnight on Monday when George W Bush-era tax cuts expired.

The 1 January deadline triggered tax increases of about $536 billion and spending cuts of $109bn from domestic and military programmes.

Economists had warned that if the full effects of the fiscal cliff were allowed to take hold, the resulting reduction in consumer spending could have sparked a new recession.

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

In addition to the income tax rates and spending cuts, the package includes:

  • Rises in inheritance taxes from 35% to 40% after the first $5m for an individual and $10m for a couple
  • Rises in capital taxes - affecting some investment income - of up to 20%, but less than the 39.6% that would prevail without a deal
  • One-year extension for unemployment benefits, affecting two million people
  • Five-year extension for tax credits that help poorer and middle-class families

Speaking before returning to Hawaii for his interrupted Christmas holiday, Mr Obama said that in signing the law he was fulfilling a campaign pledge.

"I will sign a law that raises taxes on the wealthiest 2% of Americans... while preventing a middle-class tax hike," he told a White House press conference.

The US deficit was still too high, he said.

While open to compromise on budgetary issues, he would not offer Congress spending cuts in return for lifting the government's borrowing limit, known as the debt ceiling.

"There is a path forward, if we focus not on politics, but on what's right for the country," added Mr Obama.