President Obama praises US 'fiscal cliff' deal

 

Barack Obama: "The deficit is still too high"

US President Barack Obama has hailed a deal reached to avert a "fiscal cliff" of huge tax rises and spending cuts.

After the House of Representatives passed the bill by 257 votes to 167, Mr Obama said the measures were "just one step in the broader effort to strengthen the economy".

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.

Financial markets have responded positively to the move.

In Asia, Hong Kong's Hang Seng index opened up 2.1% on Wednesday morning, while South Korea's Kospi added 1.7% and Australia's ASX 200 rose 1.2%.

UK shares jumped 1.5% on opening, German stocks gained by 1.6%, while France's Cac 40 rose 1.4% and Italy's stocks gained 2%.

Economists' warnings

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The president's tone after the vote was not conciliatory”

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In Tuesday night's house vote, 172 Democrats and 85 Republicans voted in favour of the bill.

A majority of Republicans, 151 in total, voted no, along with 16 Democrats.

The bill had been passed in the Senate less than 24 hours earlier by 89 votes to eight after lengthy talks between Vice-President Joe Biden and Senate Republicans.

US media reaction

Jonathan Weisman in the New York Times says the deal revealed a new breed of Republicans, who seemed "determined to put themselves in a position to be blamed for sending the nation's economy into a potential tailspin under the weight of automatic tax increases and spending cuts".

In the Washington Post, Zachary A Goldfarb says the deal averted "a dangerous dose of austerity but still leaves the economy vulnerable to both immediate and more distant threats", warning that it is "too modest", does nothing to address unemployment and "fails to defuse the prospect of a catastrophic national default two months from now".

Writing for Forbes magazine, John Zogby says more was at stake in the negotiations than the economy, "namely, the question of whether or not Congress could still be a viable, problem-solving body or whether it was doomed to irrelevance". Both parties had to show they could work together, he says. "And at the last minute, they did just that. And their ultimate reward: they saved their own butts."

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.

House Speaker John Boehner, who voted for the measure, said in a statement the focus would now turn to spending.

"The American people re-elected a Republican majority in the House, and we will use it in 2013 to hold the president accountable for the 'balanced' approach he promised, meaning significant spending cuts and reforms to the entitlement programs that are driving our country deeper and deeper into debt."

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

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

At the scene

In the end, it was settled after a tense meeting of House Republicans in a basement conference room.

When a stony-faced Speaker John Boehner left the room an hour later, one Congressman was overheard on the phone - it was "looking like a long night", he said, apologetically. Out of the basement, the smell of pizza wafted through the ornate House corridors. If the fiscal cliff was going to hurt ordinary Americans, the threat of it did no harm to one pizza parlour just a short hop down Pennsylvania Avenue.

Before the final vote, dissenters and supporters lined up to make their point. "Common sense has prevailed," one Democrat declared; a prominent Republican said he simply did not believe spending cuts would eventually be delivered. But as the votes rolled in, House members stood on the floor and watched as the scoreboard lit up, and applauded - briefly - when the crucial 217th vote was cast.

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 deal extends the tax cuts for Americans earning under $400,000 (£246,000) - 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
  • A one-year extension for unemployment benefits, affecting two million people
  • A five-year extension for tax credits that help poorer and middle-class families
 

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  • rate this
    +2

    Comment number 220.

    @GrumpyGeorge

    'politicians globally fail to recognise that their electorate is 10 times smarter than they are!'

    If the electorate is so clever how come they keep electing such a shower of self-serving, incompetent jackasses?

    I don't (wholly) blame the politicians - they're just trying to deliver what they promised - high levels of service and low tax. Even though they know it can't be done.

  • rate this
    +1

    Comment number 219.

    @207 American politics has no left wing, just right wing and more right wing

  • rate this
    +2

    Comment number 218.

    When are people going to wake up and understand a debt fuelled recovery is not a recovery at all. It's debt fuelled and false. Remove the printed money proping it up and the whole thing comes crashing down. Hence why gold explodes and the $ has been in constant decline ever since the private banking cartel, also known as the Federal Reserve, took over. Wake up people before it's too late.

  • rate this
    +1

    Comment number 217.

    The can's been kicked further down the road. The truth is the United States is bust, a bit like being maxed out on far too many credit cards and having a dodgy income to go with it.

    It's either superpower status and financial misery or it's walking around with a suit that fits and is affordable. Uncle Sam can do with Wal-Mart tailoring for a while.

  • rate this
    -1

    Comment number 216.

    Re; #10 zenix .."I wouldn't want to be the USA when reality (or their creditors) come knocking."
    That's why they have such a huge military, who is going to say 'pay up or else' with the USA having all that military might behind them. The mantra, 'don't do as we do, do as we say' comes to mind.

  • rate this
    -2

    Comment number 215.

    Merkel made clear in her New Years speech that the German ´Social Capitalism´ (all should benefit from societies´ success) was still the aim.

    Both America and the UK have paid only lip-service to the ideal and Southern Europe expected the luxury to be delivered with the Euro.

    Germany chose that its society should not be run by the profits of the ´Robber Barons´ or ´War lords´ of the past.

  • rate this
    +4

    Comment number 214.

    What annoys me most about modern right wing thinking when it comes to finance is their attacks on the "something for nothing culture" of the poor who rely on the state. Lets be clear about one thing; the vast majority of rich people come from privledged backgrounds. Very few of them have acheived their wealth themselves. They come from an "everything for nothing" background. Ignorant hypocrites.

  • rate this
    -7

    Comment number 213.

    Because of the financial crisis many seem to think debt is simply a bad thing. If a debt can be maintained (and that doesn't necessarily mean be able to repay it), debt is valuable and provides the only real way for all of us to progress. The more maintable debts there are the more prosperous we'll all be.

  • rate this
    -1

    Comment number 212.

    Same story, same outcome! Over and over again! They never agree until 5 mins prior to "oblivion"

    I think politicians globally fail to recognise that their electorate is 10 times smarter than they are!

  • rate this
    0

    Comment number 211.

    193. It is a myth. He sought to promote high wages as a solution to insuff AD, incr subidy (part agricultural), protection & spending on certain programs. See Smoot Hawley legislation Commenting much later on Hoover’s admin, Rex Tugwell, one of architects of FDR's new deal noted “We didn’t admit it at the time, but practically the whole ND was extrapolated from programs that Hoover started"

  • rate this
    -1

    Comment number 210.

    @ USA needs to realise that tax cuts can't be the solution to every problem, not that I like being taxed but they are legitimate government tool to help the economy (that is what people care about most isn't it?) and sometimes taxes have to go up and sometimes they need to go down. Brinkmanship in the US Congress isn't over, but this it's how politics works... through compromise

  • rate this
    +4

    Comment number 209.

    'the deal averted "a dangerous dose of austerity"'

    Yeah. Heaven forbid that the USA should have to live within its means. That would indeed be 'dangerous austerity'.

    I now realise that all my life I've been living in 'dangerous austerity' when I could have been borrowing more money than I could ever hope to pay back and living like a rock-star.

    What could possibly go wrong?

  • rate this
    +11

    Comment number 208.

    Fiscal Cliff sounds like a mate who never buys a round

  • rate this
    0

    Comment number 207.

    Are the democrats left wing ?

  • rate this
    +3

    Comment number 206.

    It's clear the economic system is broken all over the planet. Money is not circulating like it should and too many companies and individuals are hoarding cash rather than injecting it back into the economy. Trillions sit in bank accounts and tax havens doing nothing but gaining interest while people starve and lose their homes.

  • rate this
    +1

    Comment number 205.

    Another irresponsible exercise in avoiding the hard decisions that need to be made. This has brought short-term relief, but little else. As President, Obama could have, and should have attempted to correct some of America’s fiscal problems, but instead he avoided dealing with them.

    A disappointing performance.

  • rate this
    +7

    Comment number 204.

    One-year extension for unemployment benefits, affecting two million people
    Five-year extension for tax credits that help poorer and middle-class families.

    If you want to know UK policy, just imagine the reverse of USA policy.

    In USA, they have a leader protecting the poorest & vulnerable in UK we have an elitist crew who are determined to attack poor & vulnerable while spinning lies

  • rate this
    -2

    Comment number 203.

    This reminds me of G&S operetta Iolanthe. The US are truly in Fairy Land...Tripping Hither and Thither..No one knows the why or whether!

  • rate this
    +1

    Comment number 202.

    193. I agree we should learn from history (governments often don't) but the World is very different now vs Great Depression era. Western economies now have emerging capable Asian economies to compete with, huge welfare safety nets to finance and growing populations that are irrational. Current situation is a mess, any real solution is going to be painful for the majority, rich will always be OK

  • rate this
    -1

    Comment number 201.

    strange to see the media so infatuated with the USA
    what better than an all expenses jolly to Washington to cover what is in essence, a 'day in parliament' in the UK!
    the BBC is a UK funded media outlet - obviously nothing happening in the UK!
    UK does have businesses (successful as well) but clearly too mediocre for the intellectual elite that have taken over Beeb news teams

 

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