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

    Comment number 380.

    BSA - Borrowing/GDP compared to Tory borrowing/GDP was broadly comparable, and credit was cheap so interest payments were considerably less, so boosting the economy through centralised growth initiatives such as investing in infrastructure (hospitals, transport, etc) makes perfect sense. After all it had been neglected pre-90s.

    Agree about need for growth but Manchester United are in debt...

  • rate this

    Comment number 379.

    "proclaimed the end of the Euro "

    It will come by sure of that. May be not today or tomorrow but the king will come. Oh & Europe will increasingly become a backwater; low growth, high unemployment & incr fracture between the Nth & Sth. But don't let me meddle with your love affair any longer.

    "Our media- albeit run by anti-EU bankers"


  • rate this

    Comment number 378.



    Respectfully it is clear that you have little or no clue about this issue, after all if the US fails, it will default on a $16.5 trillion plus debt owed to other nations, which would led to china and India’s economies going into recession, and would destroy the global economy, essentially a nuke going off in ever stock exchange and bank worldwide at the same time.

  • rate this

    Comment number 377.

    America may not be the leader it was and less popular than last century but it's not about to sink below the Atlantic.
    Our media- albeit run by anti-EU bankers- -proclaimed the end of the Euro recently and Armageddon for life as we know it but EU's still the biggest economy and Euro the main reserve currency.
    Better if we put 'our' and USA's bankers and MPs on a small island and sunk it.

  • rate this

    Comment number 376.

    The “Emperor’s New Clothes” or “smoke and mirrors”? Fiscal tinkering cannot alter the physical facts on the ground: uncontrolled human population growth, dwindling raw materials for industry and commerce, ever increasing cost of energy and so on. And be sure, those chickens will be looking for a roosting place sooner rather than later.

  • rate this

    Comment number 375.

    192 Pancha Chandra
    "Fortunately Obama did not cave in to Republican demands"

    Yep, he and his adversaries did come to a "compromise" in one area.

  • rate this

    Comment number 374.

    362. United Dreamer

    Thatcher has nothing to do with it. Just pointing out that comparing an economy that has just come out of recession with one that had years of 'growth' (fuelled by ridiculous spending and borrowing) is not particularly useful.

    Is it easier to run an economy that has growth or one that has none or negative? Is it easier to get Man U to top of premiership or QPR?

  • rate this

    Comment number 373.

    #371 Actually spam, the ratings agencies tend to bully who they can. They reduced US's ratings and their borrowing costs went down. The Fed basically ignored them. If they try it again they will lose their market.

    #365 BSA - we face a special challenge. In WW2 would you say the debts need to be paid off before engaging the enemy? Or would you address the more challenging threat to your society?

  • rate this

    Comment number 372.

    'Keynesians just keep the market fluid so that a recession doesn't pile upon itself'

    You can have no greater example of Keynes delusion than Alan Greenspan, the champion of the credit bubble he championed them all and exhausted them all leading to recession, the like not seen since WW2.
    The ideology has proven to be a sham.

  • rate this

    Comment number 371.

    Absolutely NOTHING has been sorted.

    Basically, what they have done, is relatively shore up the hole in the Titanic with blotting paper.

    Had this been any other nation than US, the credit rating agencies would hammer down their credit rating.

    Hence, it is evident that credit rating agencys are anti EU, anti UK anti everyone apart from US

  • Comment number 370.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 369.

    357. "Keynesian economics does not say that spending creates wealth."

    The coal mine parable is from the man himself circa 1936. You might be right about my not having an understanding of Keynes. I struggled to make sense of it whilst at university in spite of it being rammed down our throats for 4 years. :-)

  • rate this

    Comment number 368.

    Enough with the "fiscal cliff" story!
    This is the UK - you're the BBC. If we really want endless analysis of US internal politics we can watch CNN.

  • rate this

    Comment number 367.

    "345. fallingTP

    "Spending IS the economy. "

    Growth is product of improvement in productivity, of scarce resources being used effectively."

    Careful TP, you're beginning to sound like a communist.

    Does sinking billions into investment banks, or increasing production of luxury cars meet that goal? Maybe the best way to hit that goal is to pay more money to the neediest low paid workers...

  • rate this

    Comment number 366.

    There is no magic cure to the fiscal cliff or the euro debt crisis, and the rest.

    The party is over. Pensions are trashed.

    Gone are the days where each generation will be richer than their parents. In general, in the west, people will now be poorer than their parents for decades.

    The fiscal cliff deal is and will remain a non event in the overall scheme of things.

  • rate this

    Comment number 365.

    359.United Dreamer

    Sorry I do not understand your point. Why is it so difficult for a Government to run balanced budget or at least aim to have a balanced budget. I understand that there may be some years where additional investment is required but there has to be a return on this investment. Our economy is held together by borrowing large sums of money each year. Not good or sustainable.

  • rate this

    Comment number 364.

    I thought slavery had finished? seems like we have sold our children back into it,oh well the con of the few has fooled the blindness and narrow vision of the many!!!

  • rate this

    Comment number 363.

    You think Wall street looks at the long term?

    They see a chance to make a quick buck in the next few weeks, before crashing the shares again and making another one when the ball is kicked down the road again.

    Up and Down is the way they make the most money, constant growth is bad for financial markets.

  • rate this

    Comment number 362.

    #311 BSA - The deficit to GDP rate fell markedly in 97. Then it went up again partly due to some real external economic hits.

    I find it amusing that you call my comments laughable after using recession to excuse the Tories for their similar deficit to GDP ratio. A recession brought onto their own heads by their own daft financial policies.

    Your slavish defence of Thatcherism is rather touching;)

  • rate this

    Comment number 361.

    355. Mmmmmm

    Perhaps might then suggest Govt gets out of the way. Growth is not about money(can print as much of it as you want but you won't get growth); it is about meeting more needs & wants with a smaller amt of work. This is why west prospered. Unfort. Europe has lost sight of this; hence collapse of productivity. Some supply side reforms might be answer huh. Govt should stop consuming.


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