US Fiscal Cliff Avoided

The United States’ long-running fiscal cliff crisis was finally resolved when the House voted on Tuesday to approve a Senate bill aimed at averting huge tax hikes and budget cuts that would have pushed the world’s largest economy into recession.

The United States’ long-running fiscal cliff crisis was finally resolved when the House voted on Tuesday to approve a Senate bill aimed at averting huge tax hikes and budget cuts that would have pushed the world’s largest economy into recession.

The last minute agreement hands a clear victory to President Barack Obama, who said he had fulfilled a campaign promise to make the US tax system fairer by raising taxes on the wealthiest Americans, even as the Republicans vowed to fight him in coming weeks for spending cuts on entitlement programmes in exchange for raising the debt limit.

As part of the deal, income tax rates will now rise on families earning more than $450,000 per year and the amount of deductions they can take to lower their tax bill will be limited, while spending cuts on military and domestic programmes have been delayed for two months.

However, workers will see up to $2,000 more taken out of their pay cheques annually with the expiration of a temporary payroll tax cut.

Obama said:

[quote] The deficit needs to be reduced in a way that is balanced. Everyone pays their fair share. Everyone does their part. [/quote]

Related News: Tax Hike for Wealthy Not Likely to Hurt Growth, Says Nonpartisan CBO

Related Infographic: Understanding the Fiscal Cliff

However, Congress must act as early as mid-February to raise the nation’s rapidly mounting $16.4 trillion debt load, or face another credit rating downgrade, and Republicans plan to use it as a bargaining chip to force Obama to accept cuts in health and retirement programmes that are due to balloon in coming decades as the population ages.

In a statement, John Boehner, Speaker of the House, said:

[quote] Without meaningful reform of entitlements, real spending controls, and a fairer, cleaner tax code, our debt will continue to grow, and our economy will continue to stumble. [/quote]

But Obama has insisted that there shall be no debate over the debt ceiling: “While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills they have already racked up. We cannot not pay bills we have already incurred,” he said.

Other highlights of the budget deal include a one-year extension for unemployment benefits, a five-year extension for tax credits that help poorer and middle-class families, a rise in capital taxes of up to 20 percent (but less than the 39.6 percent that would have prevailed without a deal) as well as an increase in inheritance taxes from 35 percent to 40 percent after the first $10 million for a household.

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