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.

Start Quote

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

End Quote

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.


More on This Story

US Economy


This entry is now closed for comments

Jump to comments pagination
  • rate this

    Comment number 294.

    What the citizens enjoy there is what could be defined as overfed. Over fed with pride, lent money of hardworking governments of other countries and with bonds that have no value. You take a loan to buy materials/existing resources and you sell them at a premium/valid price and is called business/economy. You don't keep buying & foolishly follow consumerism. Self sustainability is the key of all.

  • rate this

    Comment number 293.

    272. Il Pirata "If only we had a government that increased taxes for the rich instead of handing them a 5% tax cut."

    Cutting the tax rate from 50% to 45% is not a 5% tax cut. Such a move will reduce the tax on the rich by 10%.

  • rate this

    Comment number 292.

    The problem is globalisation and the relaxing of trade barriers. Now companies can off-shore production and import cheaply back to there own country. If the likes of Apple had to make it in the US, EU, China etc then they would be paying more tax. Keeping $54bil off-shore so it can avoid tax in the US is simply endemic of globalisation and corporate "profits before everything".

  • rate this

    Comment number 291.

    .. The debt ceiling should be raised but only for a few years to deal with current major problems

    The debt ceiling should be abolished, we elect politicians to decide how much or how little should be spent, it should not be decided by the long-dead politicians of 1939 who established the modern form of the debt ceiling.

  • rate this

    Comment number 290.

    If anything good can come from this fiasco, maybe it is to challenge elected representatives whose actions are solely driven their political parties, fund-raisers, and unelected lobbyists. Only then can the gov't tackle the real issues of the over-complex tax code and bloated public sector spending. Politicians only interested in re-election have no place in deciding the nation's future.

  • rate this

    Comment number 289.

    The US needs a flat tax without loopholes. Then a budget that is based on that income. Military spending is out of control.

  • rate this

    Comment number 288.

    As usual, it will be the poor and the elderly who will suffer the brunt of these cuts while the military and the foreign governments receving U.S. aid will remain relatively unscathed. The rich will again get away with paying minimal taxes. This has been going on since the 1950's.

  • rate this

    Comment number 287.

    Just raise the tax rate to 40% for anyone who earns 200k or over and 60% for anyone who earns 500k or over. You should get an exemption if you own a business and have employees, then you only have to pay say 15%. This makes sense, it's not rocket science. It protects jobs. Just do it. If healthy people on welfare can't find work in their town after 2 years make them move where there's work.

  • rate this

    Comment number 286.

    Deferring the sequestration cuts after all the Congressional sturm and drang over the deadline feels like a cheat. If they can defer until Feb 2013 they can -- in monthly increments -- defer indefinitely. My hope is the Dems will let the cuts happen and stop the GOP from doing what they did under Bush: use the savings to justify lower tax rates on America's richest families/corporations.

  • rate this

    Comment number 285.

    274 Sam M
    Which party could say "We want to be like the Scandanavian countries and hike tax by 12%, increase a pint of beer to £8, increase the price of petrol and ciggies and cut immigration to 100k a year. You will all hae better education, healthcare, pensions etc but you will all be a lot poorer". Great in theory but I don't think any party would commit political suicide by doing so

  • rate this

    Comment number 284.

    243. David
    Tax those with income of over £100,000 per year at 85%
    Why don't we just split the $69tn worldwide GDP equally between the 7bn people on the planet? You have to reward hard work and success otherwise no-one will have any incentive to strive for greatness.

    Making MNCs pay their share of tax and prevent tax havens from exisiting would be a better way than attacking personal wealth

  • rate this

    Comment number 283.

    The House Republicans would consider passing the bill, though they could still suggest amendments to the bill that may in turn spark a new round of legislative reviews starting again with the Senate.
    Considering that the incumbent Congress would be replaced by the Congress ushered in on November elections Wednesday, there is yet again an informal deadline posed for the legislation to be effected.

  • rate this

    Comment number 282.

    The fundamental difference between govt and business is, Govt is not strictly for profits. Govt is in business of providing maximum services as possible to all citizen. You have to have lights on the road , even though nobody uses it. Have to have police, army, tax collectors etc etc. Who pays for storm in NY or NJ. Govt provides environment under which most business flourish.

  • rate this

    Comment number 281.

    5 Minutes ago
    Perhaps all the politicos in Washington should go and see the new Spielberg film about Lincoln with Daniel Day Lewis about the struggle to abolish slavery and pass the 13th Amendment.
    Then they might grow some balls and get something done.


    Lincoln believed that only the Whites were fit to vote.

  • rate this

    Comment number 280.

    Didn't the US tell Britain to hurry and sort its affairs out didn't they tell the rest of Europe to do the same even though they caused it now its time for the rest of us to tell them to stop there nonsense and face up to there dept and before they send the rest of us into another recession.

  • rate this

    Comment number 279.

    How tragic! Higher taxes and higher spending. But the real issue, cutting spending in order to curb the escalating debt, is left unaddressed. We are burdening our children and grand-children to pay for our excesses. Simply stated, this action is short-sighted and ultimately selfish.

  • rate this

    Comment number 278.

    exactly the same way the Bank of England managed to find billions for the banks. now there is the money to nationalise the utility sector.and increase the capital gains on utility firms to 100%.

  • rate this

    Comment number 277.

    The rich (200k) and super rich must pay much more in taxes. Government workers must get reduced entitlements so they are the same as everyone else. A certain amount should be paid back each year to really start reducing the debt. Ancient Rome got too concerned with security and couldn't pay for all it's walls and outposts, America should not make the same mistake and should close some bases.

  • rate this

    Comment number 276.

    265. anthonygh "How has that happened in a democracy?"

    It hasn't. There is, I believe, one tiny state in the pacific that is a democracy. America is much further away from democracy than is the uk, and that isn't even close. Any country that operates on party politics is undemocratic by default. If the politicians represent the people who elect them, rather than 'the party', that is democracy.

  • rate this

    Comment number 275.

    They should stop pussy-footing around, America actually needs huge spending cuts and tax rises. The pain they will experience in years to come will be a lot worse than they will experience now if they do not act.

    I don't think either political party has the grit to do what is required. They will turn to their central bank and print even more money, thereby making everyone holding dollars suffer.


Page 5 of 19


More US & Canada stories



BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.