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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Comments

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  • rate this
    +2

    Comment number 280.

    @261. Moneydude

    Yes, the amortisation payments will never repay the mortgage in my lifetime.

    The key point which I've tried to make a number of times now is that the debt only has to be 'maintanable', i.e. the interest can be paid. Of course, the asset value must be more than the overall debt (currently ca. 45% in my case)

    This is how individuals and economies progress by leveraging assets.

  • rate this
    0

    Comment number 279.

    It is morally right to tax the wealthiest, and protect the most vulnerable. Hail Obama!

    By contrast Cameron and the Tories are giving the wealthiest with a tax cut, and the kicking the poorest with cuts in benefits. Shameful and morally disgusting!

  • rate this
    +1

    Comment number 278.

    Hello,

    This is a very important thing to be happening in America that can hopefully have a positive impact to the rest of the world. I am not American and I have never been to America but a world with a weak America is a very dangerous world to be living in. A strong America is what we all need and hopefully the above deal can make America stronger.

    Arber Gega

  • rate this
    -4

    Comment number 277.

    Any deal that doesn't explicitly renounce George Bush's tax cuts is a loss for Obama.

  • rate this
    +4

    Comment number 276.

    Obama maintains - 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.
    This sounds somewhat dictatorial. Surely Obama knows spending is way out-of-hand. Does he really expect Congress to raise the debt ceiling without implementing spending cuts?

  • rate this
    0

    Comment number 275.

    264. " I'm not sure what system will replace it."

    Cigerettes?

  • rate this
    0

    Comment number 274.

    Same old song, raise taxes for those who pay none anyway and screw the rest. Without serious spending cuts nothing will change here. They will continue to spend like drunken sailors.
    Ordinary people can't borrow forever when they do not have the means to pay so why is it different for a country.

  • rate this
    +2

    Comment number 273.

    "
    Yes a few examples. I was not literally saying it had never happened but eluding to the fact that despite so called growth in UK and US between 2001 - 2007 the deficit increased
    "
    It always has in real terms over anything more than a few years.
    However as a percentage of GDP it was still less in 2008 than in 1997
    http://www.ukpublicspending.co.uk/spending_chart_1997_2008UKp_12c1li011mcn_G0t

  • rate this
    +3

    Comment number 272.

    When those elected to be the representatives of the people use a serious crisis for political posturing instead of providing a REAL solution to the problem there is something seriously wrong with the political structure. Again politicians whose only interest is in who has paid for them to be in power. All this does is provide a sticking plaster to a gaping wound. We live in sad times.

  • rate this
    +1

    Comment number 271.

    @268 John from Hendon

    Thanks for that.

    I didn't mean to come across as smug, but sometimes the truth needs telling.

    With regards to saving, I go further.....I invest using my ISA allowance in the emerging market countries like Brazil! I own investment funds in many strong emerging countries.

    One day I will be financially independent supporting myself and my own life..plus retired :-)

  • rate this
    +3

    Comment number 270.

    Raise taxes on the rich and defend the poor! What is he thinking about? I don't know. A politician who understands the meaning of the word 'fair'. Well I never. Sadly it doesn't help the poor,sick,disabled and infirm here.

  • rate this
    +1

    Comment number 269.

    @252. quietoaktree

    There will always be a hole. It's only a question of how far you dig before you realise you can't get out out of it again.

    The 'sustainable and valuable debt' I've created provided wages for the workers who built my house and paid for the materials providing indirect wages too. Investment spending is one of the key elements to propserity.

  • rate this
    0

    Comment number 268.

    261.Moneydude

    "I got a mortgage, knew I could pay it off, why? I live within my means!"

    Being smug is not a pretty sight!

    The Establishment can destroy your means very easily - it can even kill you and your family.

    Let's see I can see many ways which can destroy your smugness as I am sure you can too.

    Better a saver be than a borrower does ease life's worries, though!

  • rate this
    0

    Comment number 267.

    #241

    You succinctly identify the problem.

    In the last decade, when times were good, instead of putting money away for a rainy day - i.e. by reducing the national debt, it was racked up.

  • rate this
    +2

    Comment number 266.

    @230 James Froggatt -
    Now is not the time to make cuts.

    Unfortunately, the US electorate believes this is true for all values of "Now".

  • rate this
    0

    Comment number 265.

    #251 burty

    -- The 2% goes back into Social Security --where it originally came from.

    -- saving for the ´rainy day´--so all will not be ´worse off´.

  • rate this
    -2

    Comment number 264.

    @256 I don't mean it will collapse to the point where money will have no value,I mean it will collapse to the point where the very concept of money will be abandoned altogether.I don't believe it will happen in my lifetime and I'm not sure what system will replace it.I do believe that one day enough people will wake up and realise what is really important. Money isn't real,it only seems that way.

  • rate this
    0

    Comment number 263.

    US Government owes money to China - 1.169 trillion dollars and Japan 1.083 trillion dollars out of what was then the lower figure of 15 trillion of accumulated debt according to one web site, but obviously this varies on a daily basis.

  • rate this
    0

    Comment number 262.

    254. LeeRoySandersJr_Sandy_

    "Governments ...lie and steal from their people"

    You haven't just woken up to this have you!

    But 'we' put up with this robbery and deception as most governments do not slaughter their people, very often. Most of the time we have the rule of law, more or less.

    This risk is that the establishment believes its own propaganda (see Hillsborough, Bloody Sunday etc, etc.)

  • rate this
    +1

    Comment number 261.

    @ 233 Selhurstboys

    So you have a mortgage that you know you will never be able to repay??

    Who the hell sold you such a product? When they did their due diligence on you are you telling me they concluded that you couldn't repay it all off so the answer is YES you can borrow it?

    No wonder we are in such a mess!!

    I got a mortgage, knew I could pay it off, why? I live within my means!

 

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