Fiscal cliff: White House 'deal made with Republicans'

 

President Obama said a larger deal could be accomplished "in several steps"

The US has formally missed a deadline to avert spending cuts and tax rises - the "fiscal cliff" - despite a last-ditch tentative deal in the Senate.

Vice-President Joe Biden briefed Senate Democrats behind closed doors after Republicans and the White House agreed a plan.

The Senate is expected to vote in the early hours of Tuesday morning, with the House to consider a bill later.

Tuesday is a public holiday in the US, so no immediate effects will be felt.

Analysts say if the effects of the fiscal cliff are allowed to take hold, they 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 bad news is that America is going to go over the fiscal cliff. The good news is that it probably won't hit the bottom - and no one will feel the impact.

We expect a deal to be done on Monday night and the Senate to vote on it. But the House has already gone home and will not say yea or nay to an agreement. That's why America will go over the cliff, at least technically.

But New Year's Day is a public holiday. Markets are closed around the world. The US government is also shut. Likewise, tax rises won't be felt until people get their January pay cheques.

If it is clear that the politicians are going to do a deal pretty soon, then no one will panic. At the moment, a deal seems to be close enough to touch. If it moves out of reach, then the ground will rush up to meet us soon enough.

After a long day of negotiation on Capitol Hill, signs of a deal emerged hours after the House of Representatives was dismissed for the night.

Earlier, President Barack Obama said a deal to avoid the steep tax rises and spending cuts was "within sight".

Tax cuts passed during the presidency of George W Bush formally expired at midnight (05:00 GMT).

But the proposed eventual deal appeared to extend tax cuts for Americans earning under $400,000 (£246,000) - up from the $250,000 level Democrats had originally sought.

A huge spending cut known as the sequester - that would see $1.2tn cut from the federal budget over 10 years - would be deferred for two months, reports said, allowing Congress and the White House to reopen negotiations on a wider deal.

Earlier, Mr Obama said he would had preferred to resolve the fiscal cliff through a "grand bargain" that dealt with both long-term spending and tax issues.

"But with this Congress, that was obviously a little too much to hope for at this time," he said at the White House.

Cuts debate

What is the fiscal cliff?

  • On 1 January 2013, tax increases and huge spending cuts are due to come into force - the so-called fiscal cliff
  • Deadline was put in place in 2011 to force president and Congress to agree ways to save money over the next 10 years
  • Date coincides with expiry of Bush-era tax cuts, which would affect all income groups and many businesses
  • Fear is that raising taxes while massively cutting spending will have a huge impact on households and businesses
  • Experts believe it could push the US into recession, and have a global impact on growth

Amid some Republican disquiet over the president's barbed remarks, the party's Senate leader Mitch McConnell quickly calmed proceedings in the afternoon.

He backed the president's assessment and said a deal should be done quickly.

"Let's pass the tax relief portion now," said Mr McConnell, who spent Sunday evening and Monday negotiating with Vice-President Joe Biden.

"Let's take what's been agreed to and get moving. We'll continue to work on finding smarter ways to cut spending."

As well as the income tax rates and spending cuts, the deal under discussion includes:

• Tax rates to rise on estate inheritances from 35% to 40% after the first $5m for an individual and $10m for a couple

• Capital gains taxes - affecting certain income from investments - would rise from 15% to 20%, but less than the 39.6% it would rise under after 1 January.

• Unemployment benefits would be extended for year, affecting an estimated two million people

• Extending tax credits that help poorer and middle-class families for five years

Sen John McCain: "President Obama sent a message of confrontation to the Republicans"

Any deal needs to pass the 100-member Senate, which is controlled by Democrats, before heading to the House of Representatives, where Republicans hold the majority.

But no votes have yet been scheduled in either chamber.

Also on Monday, the US Treasury said the federal government had hit its self-imposed borrowing limit, the debt ceiling

Treasury Secretary Timothy Geithner sent a letter to lawmakers informing them that some pension and health benefits would be suspended in order to free up borrowing authority until the end of February.

Mr Obama had asked for an extension of debt ceiling as part of the fiscal cliff negotiations, and correspondents say the issue is the next hurdle between Congress and the president.

 

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  • rate this
    0

    Comment number 569.

    What a farce! Two questions for America. Firstly, do you still believe your political system is fit for purpose? Secondly what does it mean for democracy when your lender of last resort is communist party of China? Massive American debt is a medium term threat to world order. China has a problem the US is crippled. The US has the talent and resources......but as has been said they need man up.

  • rate this
    0

    Comment number 568.

    I see there are still folk saying the best thing would be service cuts and tax increases for the rich.
    That would be a suggestion, if it were based in reality.
    Such comments just show a total lack of understanding of what lies behind all this. The rich/corporations would NOT pay any more tax. They'd just collect it from you and pass it on.
    All money is debt, the loans can NEVER be repayed

  • Comment number 567.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    0

    Comment number 566.

    BBC radio's criticism of the way the US manages its affairs is just one more example of its unmitigated hubris.Who kicked the can down the road more than the EU?The UK hasn't even begun to deal with its own financial problems.We don't even know if the can will be kicked down the road and if it is it won't be very far or for very long.The crisis still looms soon and near.

  • rate this
    0

    Comment number 565.

    Remember Peeps..
    Fact :
    Only Time Jesus gets Annoyed --Was Always Been Against MoneyChangers Entering Temple..Heres the Reference from HolyBible
    John 2: 13 - 22, Matthew 21: 12 - 13,Mark 11: 15 - 17
    Amen..
    Luke 19: 45 - 46

  • rate this
    0

    Comment number 564.

    Why does the deficit matter? USA can print as many $ as it wants and then force the rest of the world to keep their reserves in $, trade in $. Even individuals keep their savings in Dollars. As the Dollar is spread globally, inflationary effect in USA is minimum. If someone wants to trade in other currencies, then USA superior military to teach them a license. USA is in no 'loose' situation.

  • rate this
    0

    Comment number 563.

    What a loss of moral authority now for the USA. It has got the trifecta 1. Farm Bill..not passed 2. Fiscal cliff ..agreement not reached 3. Borrowing limit of 16.5 trillion reached...Now their US structural deficit may increase world borrowing interest rates, just as EU rates need to be cheaper to stimulate their economies.

  • rate this
    0

    Comment number 562.

    Can Geithner suspend the benefits of legislators and their congressional employees in order to "free up borrowing authority"? Let's not forget that the staff members of our legislators drive the policy and political choices of our elected officials. Bureaucracy man...don't kill the government, kill the unnecessary middle manager, support staff, enablers of our government officials.

  • rate this
    0

    Comment number 561.

    Well, Congress has a 'Tentative' agreement and they missed the midnight deadline. This means that since they really haven't come to a complete agreement that anything could change.

  • rate this
    0

    Comment number 560.

    I believe that it time for Americans to stand up for ourselves and demand changes in the legislators requirements for passing/not passing, legislation that is necessary to keep our union perfect, establish Justice, insure domestic Tranquility, provide for the common defense,] promote the general Welfare, and secure the Blessings of liberty. they should be fined for failure to do their work

  • rate this
    0

    Comment number 559.

    McCain said the chips were down.

  • rate this
    0

    Comment number 558.

    How about a true coalition America? One were everyone pulls in the same direction for the good of the people and therefore the country, not just for the good of the few.

    You want to lead the world and set an example? That's how you do it.

  • rate this
    0

    Comment number 557.

    who gives a stuff. the rich get richer and the poor get poorer whatever happens.

  • Comment number 556.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    -1

    Comment number 555.

    End of the World and 300 mln. people fall-down from the giant cliff were avoided within one month. We can if we want!

    Next target is not let Greece to squash World Economy.

    HAPPY NEW YEAR EVERY ONE!

  • rate this
    0

    Comment number 554.

    @Medea Fleecestealer "Medea Fleecestealer" suggests scrapping the budgets for NASA and military spending. That comment has been selected as an "Editor's Pick." Well, the military budget is about 25% of the budget. NASA accounted for less than half a percent of the 2012 budget. This comments suggests a very anti-science bias, and is especially distressing as the BBC seems to support it.

  • rate this
    0

    Comment number 553.

    Sorry, is it just me, or is the a Republican problem (George Snr's plan), that is being blocked by the Republicans now?

    The Democrats should just let it happen.

    Who can you blame?

  • rate this
    -1

    Comment number 552.

    Number sixty - just read the comments and you will see what I mean. We are arrogant, but you guys are runaway champions in sad denial. Insults aside, THE DEAL IS NOT BAD AT ALL. I dare to demonstrate what Europe achieved over the last year. I am a little bit shocked by one sided comments. The only reason - ideology and label making, so what McCain is republican? He is a smart and reasonable man.

  • rate this
    0

    Comment number 551.

    @550. numbersixty "Bit full of yourself, aren't you?"

    Of course. I'm the greatest singer song writer ever!

  • Comment number 550.

    All this user's posts have been removed.Why?

 

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