US Senate passes 'fiscal cliff' deal to avoid tax rises


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

The US Senate has approved a deal to avert general tax hikes and spending cuts known as the "fiscal cliff".

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

The House is due to consider it later. Spending cuts have been delayed for two months to allow a wider agreement.

Congress missed the deadline to pass a bill, but few effects will be felt as Tuesday is a US public holiday.

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

Without approval in the House, huge tax rises for virtually all working Americans will kick in automatically.

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

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American politicians certainly know how to take it to the wire - and just a little bit beyond”

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The compromise deal reached on Monday seeks to avoid this by extending the tax cuts for Americans earning under $400,000 (£246,000) - up from the $250,000 level Democrats had originally sought.

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

The Senate approved the compromise bill by 89-8. "If we do nothing, the threat of a recession is very real," Senate Majority Leader Harry Reid, a Democrat, said. "Passing this agreement does not mean negotiations halt, far from it."

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

What is the fiscal cliff?

  • On 1 January 2013, tax rises and huge spending cuts come into force - the so-called fiscal cliff
  • The deadline was put in place in 2011 to force the president and Congress to reach agreement on the budget over the next 10 years
  • Date coincides with expiry of Bush-era tax cuts
  • There are fear that raising taxes while massively cutting spending will have a huge impact on households and businesses
  • The fiscal squeeze could also push the US into recession, and have a global impact

• 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

'Imperfect solution'

President Barack Obama welcomed the Senate vote.

"Leaders from both parties in the Senate came together to reach an agreement that passed with overwhelming bipartisan support today that protects 98% of Americans and 97% of small business owners from a middle class tax hike," he said in a statement.

Press reaction

Jennifer Steinhauer in The New York Times writes: "The confusing struggle to head off a national fiscal crisis has made one thing crystal clear: The era of the Big Deal is over."

In The Washington Post, David A Fahrenthold says:"The New Year's Eve agreement between [Vice-President Joe] Biden and [Senate Minority Leader Mitch] McConnell provided a glimpse at the ways that personality quirks and one-to-one relationships can still change the course of Washington politics."

The Wall Street Journal says: "The wider deal doesn't do much to control the US's long-term budget woes, which are driven largely by entitlement spending, especially on health care, left untouched in this agreement."

"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."

Senate Minority Leader Mitch McConnell, a Republican, said: "It took an imperfect solution to prevent our constituents from a very real financial pain, but in my view, it was worth the effort."

The BBC's Mark Mardell in Washington says many of the Republicans who dominate the House dislike the deal and may stand on their principle.

Speaker John Boehner said the House would consider the deal but left open the possibility of amending the Senate bill - which would spark another round of legislation.

"Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members... have been able to review the legislation," Mr Boehner and other House Republican leaders said in a statement.

The current House can legislate until Wednesday, when it is replaced by a new chamber chosen during last November's election.


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  • Comment number 134.

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

  • rate this

    Comment number 133.

    Why am I unable to comment ?

  • rate this

    Comment number 132.

    Its the american political system thats broke - why do they have to get approval from the losing party to pass financial rules? In the UK the budget gets posted by the party in power and we live with it. This means action gets taken - not continual compromise and inaction.

  • rate this

    Comment number 131.

    The right of right republicans wil hate this. Mind you they hate anything that isn't them. They have a belief that they and only they have a right to everything and pay nothing in return.
    Me, me, me and who cares about anyone else. That's the american republican party and so called elite. It's only the american education system that prevents them from ceasing to exist. (work it out)

  • rate this

    Comment number 130.

    "Neither a borrower nor a lender be"

  • rate this

    Comment number 129.

    Staggering that many of those prepared to comment are either bored with the topic (then no need to comment) or don't see the relevance. The relevance comes from the fact that that the USA is one of our major trading partners and if they don't have money to spend the UK earns less ... sorry if this reality is boring ... pahhh

  • rate this

    Comment number 128.


    My point is not aimed at you directly, my point as I said was the media and policy makers blame the "rich" always playing on peoples jealous natures to aim attention to a minority of people, Hitler did the same, get the masses on board because its easier to blame someone else than face the fact you cannot live within your means and get votes by being honest to the "99%"

  • rate this

    Comment number 127.

    Central banks will print lots of money. Also watch inflation targets slip as it's used as a way of reducing the national debts of nations.

  • rate this

    Comment number 126.

    Cut spending ok, cut public sector pay rises ok.
    Increase taxes? Financial madness during a recession.

  • rate this

    Comment number 125.

    I find it bizarre that the US is moving more and more to a class system. Every politician these days talks about the lower and middle class in America. I thought social status in the US wasn't a barrier to success? It seems it is more so now than ever before. The top 1% control 80% of the wealth, and the Republicans want to keep it that way.

  • rate this

    Comment number 124.

    "fiscal cliff".and debts boring now all of this just rubbish

  • rate this

    Comment number 123.

    Bored with this C**P now. Its just face saving no one wants to take the blame for what must happen. The weath must be taken from those that can afford it. Thats the GREEDY rich and FACELESS corporations. JUST PAY YOUR FLIPPIN TAXES. And stop going to war with everyone.

  • rate this

    Comment number 122.

    In what way is this relevant to us in the UK?

    It is fine for this to be a piece of news on an international news website, sure, but why is it front page news for us from the UK?

  • rate this

    Comment number 121.

    I'm not sure this really helps. The economic problems were compounded by tax cuts and defence spending. The majority of tax cuts remain and will find it impossible to get the necessary defence cuts past Republicans.

    I think Howard Dean may have been right, they needed the forced return to Clinton era taxes and unnegotiated military spending cuts

  • rate this

    Comment number 120.

    @114, I believe I implied not all rich are to blame?

    The smart ones risk their own money/wealth. But the ones who caused the mess we're in are the same ones who generally oppose raising taxes (notice the super-rich saying they're happy to pay more tax).

    Please don't try manipulating what I say to imply something else.

  • rate this

    Comment number 119.

    Ach....get the central banks to print some more money, and invent a super duper trading algorithm for the robots...

    All will be fine...we can count on Goldies ( sic )..

  • rate this

    Comment number 118.

    @98 weeljing - 'real wages have declined' because of the government spending. The dollars' value has inflated by 94% in eighty years due to the pumping of money into the economy by the reserve. Meaning that one dollar buys you less today than it did yesterday. And 'education has declined' because when you get something for free the quality decreases.

  • rate this

    Comment number 117.

    the government is going to come and "take it", regardless of your property rights"

    Property rights only have any meaning and enforcement within the context of an organised, functioning society. Such a society needs paying for. You may argue about the extent of that society and how it gets funded but you seem to be arguing that these rights can exist irrespective of such a society.

  • rate this

    Comment number 116.

    62 TonyL99

    All this talk of 'debt'. To whom, exactly, is all this debt owed?

    Interesting question. I think it is actually pretty virtual and most of it just cancels out. We borrow from american banks and they borrow from our banks. We all borrow from China, but their debt level is running at 96 percent of gross domestic product! So, they are borrowing it to lend it, just like everyone else!

  • rate this

    Comment number 115.

    This deal was agreed after the deadline. What was the point of a 'deadline' if it is going to be ignored for sake of expediency? The automatic changes should be inforce now - but they are all pretending the deadline didn't really matter. In the meantime, share values here fell. Ridiculous posturing and gamesmanship has no place in serious politics - but perhaps they are not serious.


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