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
    +3

    Comment number 360.

    This is why Obama was voted in. A fair package that a Republican government - wanting to tax the poor indirectly, and reduce taxes on the rich directly - would not do. The US's political system is clearly nowhere near perfect, but this is a step forward.

  • rate this
    0

    Comment number 359.

    "311 BSA

    When tax revenues stagnate or drop, whilst spending increases, you eventually have a problem, bank bailout or not. How long can you continue down this path before lights are switched off."

    When you get the economy productive again. When inherent financial instability of the finance markets are addressed. When wealth gap is addressed. When off shore savings are brought into the economy.

  • rate this
    0

    Comment number 358.

    It raises taxes for the wealthy & delays spending cuts for two months.
    Financial markets have responded positively to the move. Who are these investors responding so positively? They can't be longterm investors because the Govt doesn't have a longterm solution.
    Surely the entire world is aware that US problems remain unsolved. So what's happening on Wall Street?

  • rate this
    0

    Comment number 357.

    BTW, I apologize for calling your Mr. Failing instead of Mr. Falling. But you do seem to fail to understand Keynesian economics, so maybe my typo is apt.

    Keynesian economics does not say that spending creates wealth. Wealth is always created because people do things, and then want to trade for other things. Keynesians just keep the market fluid so that a recession doesn't pile upon itself.

  • rate this
    +1

    Comment number 356.

    @349 Mike Simplex,

    "How long before everyone wakes up to the fact growth is proportional to resource!"

    Can't help but notice the negative rating.

    As is often said, "The truth hurts!"

    The bottom line is that "business as usual" cannot begin to tackle the problems we currently face and are soon to face.

    We have to think out of this box and make a real effort to come up with something new.

  • rate this
    +1

    Comment number 355.

    #352
    You can produce the most needed goods in the world, at peak efficancy, but if there is no money to buy them (no spending on them) you have no growth.

  • rate this
    +3

    Comment number 354.

    Nothing was solved or decided other than to put off the tricky decisions for another day when the problem is bigger.

  • rate this
    0

    Comment number 353.

    Here's a plan for controlling government spending.

    Instead of having the taxpayer footing the bill, the liability for monies borrowed fall on the elected officials who vote for a budget which would require funds not available. They would have to pay it from their own pockets, first by garnishing their salaries, then by billing them directly.

    The legislature would balance the budget overnight.

  • rate this
    0

    Comment number 352.

    Growth is based on efficient prodn of G&S that people want & need; it is not based on spending as such. Econs producing in such a way give us power to consume. Innovation & change are vital cogs in process. Companies, bus models, behaviour is being altered, smashed all the time, new products launched & dropped, capital & labour reallocating to better uses.

    348. How's your new mobile phone?

  • rate this
    +1

    Comment number 351.

    #348. You didn't finish!
    The masses, real drivers of economy/wealth creation are being mugged in daylight, with a dozen copers standing by watching while the perp saunters off shouting "I did it! I did it!" at the top of his voice as he walks over to a kindly old lady and shouts "You next" and mugs her too!

  • rate this
    +1

    Comment number 350.

    it should be called ' fiscal trench' a they're digging it deeper and deeper.

  • rate this
    -1

    Comment number 349.

    How long before everyone wakes up to the fact growth is proportional to resorce!

    The world is allready over populated, we allready exploite every third world economy till their bones hurt.

    But hey ho, lets borrow our childrens childrens future and hope for the best...

    I just hope there is a future for our kids...

  • rate this
    +3

    Comment number 348.

    338.trlkly
    17 Minutes ago

    No you're wrong.

    The crash is STILL in progress, just slow motion, designed so that the elite10% can jump out the passenger door with all their cash & rob the driver on their way out, which is why the 10% have increased wealth more since begining of crash & still able to do so. The masses, real drivers of economy/wealth creation are being mugged in daylight.

  • rate this
    +2

    Comment number 347.

    343.trlkly

    'Spending IS the economy. Capitalism only works if there is a steady supply of money changing hands'

    You are confusing private spending with government spending. Do you spend more then you earn each month?

  • rate this
    -1

    Comment number 346.

    Mr Obama has done the most he can with the Republicans (who are largely responsible for the US mess) being difficult.

    However to pretend this solves anything is naive. The deficit and debt remains the same. It is an agreement to postpone an action plan.

    I guess Obama has been watching how the Europeans do it!

    Gord help us!

    (Well he would, but he is also jointly responsible for the mess)

  • rate this
    0

    Comment number 345.

    "Spending IS the economy. "

    No you are wrong there. Accum evidence suggests govt efforts to heal sick economies fail. Growth is product of improvement in productivity, of scarce resources being used effectively, not spending. £1m of govt spending is not same as £1m of private spending. Empty airports in spain might incr GDP, but at expense of genuine economic deve.

  • rate this
    +1

    Comment number 344.

    This whole episode reminds me of carbon cutting in the UK.
    Doesn't matter what we do, it's what China/US do that will determine if carbon cutting is sucessful or not.

    Doesn't matter if Dave's plan for the economy is right, if the US went for austerity we'd like as not be back in recession soon enough. Same with if the EU went as far as the experts think it should.

  • rate this
    +1

    Comment number 343.

    Because, Mr. Failing, you have to pay for what you use. Spending doesn't magically boost the economy. Spending IS the economy. Capitalism only works if there is a steady supply of money changing hands.

    But that money has to come from somewhere. You have to borrow from the future to spend money today. That's what a loan is. If you don't pay loans, people won't loan you, and your money loses value.

  • rate this
    0

    Comment number 342.

    Keep spending until you are recovered from the recession."

    Or in the case of Japan for 20 years and they are still waiting. Just spend for growth.

    Why not fill old bottles with bank-notes, bury them in a coal mine, fill it in and then get people to dig them out. There would be no more unemployment & capital wealth would incr. It's that easy. Oh wonder.

  • rate this
    +3

    Comment number 341.

    Congress - a pack of attention seeking hysterics - how dare they fool around with the lives & futures of the electorate,playing their stupid brinkmanship games, just to show us all how important & dramatic they are! No one is impressed and no one has been fooled into believing they are worth their salaries & perks. For the first time ever I'm fed up with being American. Happy New Year Folks!

 

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