President Barack Obama has hailed a deal reached to stave off a “fiscal cliff” of drastic taxation and spending measures as “just one step in the broader effort to strengthen the economy”.
Barack Obama was speaking after the House of Representatives passed a Senate-backed bill by 257 votes to 167.
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.
In Tuesday night’s house vote, 172 Democrats and 85 Republicans voted in favor 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.
Barack Obama has hailed a deal reached to stave off a fiscal cliff of drastic taxation and spending measures
Asian markets have responded positively to the move, with Hong Kong’s Hang Seng index up 2.1% on Wednesday morning, while South Korea’s Kospi added 1.7% and Australia’s ASX 200 rose 1.2%.
Speaking before returning to Hawaii for his interrupted Christmas holiday, Barack 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, Barack Obama 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,” he added.
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 1st of January deadline triggered tax increases of about $536 billion and spending cuts of $109bn from domestic and military programmes.
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 – 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 $5 million for an individual and $10 million 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
One-year extension for unemployment benefits, affecting two million people
Five-year extension for tax credits that help poorer and middle-class families
The US Senate has decided to approve a deal to avert general tax hikes and spending cuts known as the “fiscal cliff”.
The bill, which raises taxes for the wealthy, came after lengthy talks between Vice-President Joe Biden and Senate Republicans.
The House is due to consider it later. Spending cuts have been delayed for two months to allow a wider agreement.
Congress missed the deadline to pass a bill, but few effects will be felt as Tuesday is a US public holiday.
Tax cuts approved during the presidency of George W. Bush formally expired at midnight.
Without approval in the House, huge tax rises for virtually all working Americans will kick in automatically.
Analysts warned that if the full effects of the fiscal cliff were allowed to take hold, the resulting reduction in consumer spending could spark a new recession.
The compromise deal reached on Monday seeks to avoid this by extending the tax cuts for Americans earning under $400,000 – up from the $250,000 level Democrats had originally sought.
A huge spending cut that would see $1.2 trillion shorn from the federal budget over 10 years has been deferred for two months, allowing Congress and the White House to reopen negotiations.
The Senate approved the compromise bill by 89-8.
The US Senate has approved a deal to avert general tax hikes and spending cuts known as the fiscal cliff
“If we do nothing, the threat of a recession is very real,” Senate Majority Leader Harry Reid, a Democrat, said.
“Passing this agreement does not mean negotiations halt, far from it.”
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
• One-year extension for unemployment benefits, affecting two million people
• Five-year extension for tax credits that help poorer and middle-class families
President Barack Obama welcomed the Senate vote.
“Leaders from both parties in the Senate came together to reach an agreement that passed with overwhelming bipartisan support today that protects 98% of Americans and 97% of small business owners from a middle class tax hike,” he said in a statement.
“While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay.”
Senate Minority Leader Mitch McConnell, a Republican, said: “It took an imperfect solution to prevent our constituents from a very real financial pain, but in my view, it was worth the effort.”
Many of the Republicans who dominate the House dislike the deal and may stand on their principle.
Speaker John Boehner said the House would consider the deal but left open the possibility of amending the Senate bill – which would spark another round of legislation.
“Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members… have been able to review the legislation,” John Boehner and other House Republican leaders said in a statement.
The current House can legislate until Wednesday, when it is replaced by a new chamber chosen during last November’s election.
US Congressional leaders have one more day to stop the threat of steep tax rises and spending cuts, known as the “fiscal cliff”, after talks ended with no deal.
Senators will continue to seek a compromise deal on Monday to send to the House of Representatives.
Failure to reach agreement by January 1 could push the US back into recession.
Earlier, President Barack Obama increased pressure on Republicans to accept a deal, blaming them for the deadlock.
He said their “overriding theme” was protecting tax breaks for the rich.
Talks ended on Sunday with no deal after a day that saw Republican and Democratic senators wrestle over detail and seek to shape a final bill.
Sticking points included the fate of expiring Bush-era tax cuts, an estate tax and steep cuts in spending known as the sequester.
If no agreement is reached on Monday, senators are expected to be given the chance to vote on a fallback plan proposed by President Barack Obama.
That would renew tax cuts on earnings under $250,000 and extend unemployment benefits, but does not address the steep spending cuts.
US Congressional leaders have one more day to stop the threat of fiscal cliff after talks ended with no deal
The current stand-off has its roots in a failed 2011 attempt to tackle the government debt limit and budget deficit. Republicans and Democrats agreed then to postpone difficult decisions on spending until the end of 2012, and imposed a threat of compulsory cuts if no deal was reached by December 31.
Analysts say that even if a deal is reached on the fiscal cliff, it will do little to reduce the original problem of the deficit and the government debt limit, raising the prospect of further political in-fighting early in the new year.
Senate Democratic leader Harry Reid and his Republican counterpart Mitch McConnell were locked in negotiations over the weekend.
The two senators appeared to admit not long before the 15:00 deadline that negotiations were at a standstill, with their two parties still divided over core ideological issues about tax and government funding.
Senator Harry Reid said the Democrats were as yet unable to make a counter-offer to an apparent Republican proposal to slow cost-of-living increases for social security recipients, known as “chained CPI”.
Meanwhile Senator McConnell said he had asked Vice-President Joe Biden for help in breaking the deadlock.
“I’m concerned with the lack of urgency here. There’s far too much at stake,” he said.
“There is no single issue that remains an impossible sticking point – the sticking point appears to be a willingness, an interest or courage to close the deal.”
In his interview with NBC’s Meet the Press, broadcast on Sunday, Barack Obama said the priority was to ensure taxes do not rise for middle-class families, saying that would “hurt our economy badly”.
“That’s something we all agree on. If we can get that done, that takes a big bite out of the <<fiscal cliff>>,” he said.
There is also debate over where to set the threshold for tax rises. Democrats say the Bush-era tax cuts should be extended for all Americans except the richest – those with annual earnings of more than $250,000.
Republicans – some of whom have pledged never to vote for increased taxes – say the deficit is a consequence of excessive government spending.
They want the tax threshold set higher, at around $400,000, and for revenue to be raised by economic growth and cuts in social security and other services states are legally bound to provide.
President Barack Obama has used a last-ditch White House meeting to urge Congress to back an interim plan to avoid the “fiscal cliff”, reports say.
Barack Obama reportedly asked Republican and Democratic leaders to back tax cuts for those earning under $250,000.
They have only four days to reach an agreement before across-the-board tax rises and spending cuts take effect.
Analysts say sliding over the “cliff” could tip the US into recession and set back the global economic recovery.
There appeared to be no immediate resolution after the meeting, but Barack Obama is due to make a statement at 17:45 EST.
Barack Obama cut short his holiday in Hawaii to resume the negotiations. The Senate returned to work on Thursday, with the House due back on Sunday.
Reports ahead of the meeting suggested the president would propose a limited package including the renewal of most expiring tax cuts, and a delay or replacement of some spending cuts.
But as the meeting at the White House began, US media reported that the president was making no new offer, instead seeking a simple vote on extending tax cuts for middle class Americans.
There was no word on whether Republican House Speaker John Boehner and Senate minority leader Mitch McConnell were open to a deal or had a counter-offer.
Democratic Senate majority leader Harry Reid and senior House figure Nancy Pelosi were also at the White House.
Earlier, there was upbeat rhetoric from some senators.
Barack Obama has used a last-ditch White House meeting to urge Congress to back an interim plan to avoid the fiscal cliff
“I’m getting a little more optimistic today. Sometimes it’s darkest before the dawn and there are two good signs for optimism today,” senior Democrat Chuck Schumer told NBC’s Today show.
Republican Jon Kyl told Bloomberg News: “Everybody recognizes we’re either going to get something in the next few hours or not. There’s no more posturing time left.”
Barack Obama’s plans to increase taxes on the wealthiest Americans have remained a point of division between the two parties since he won re-election in November.
Many Republicans oppose new taxes as a matter of principle, and are demanding cuts to what they see as deficit-inflating public spending, putting at risk healthcare and welfare benefit schemes popular with Democrats.
An alternative plan proposed by House Speaker John Boehner – which would have seen taxes rise only on those earning over $1 million – failed in the House of Representatives late last week.
Speaking on Thursday, the Democratic majority leader in the Senate, Harry Reid, said he thought a deal was unlikely. Later, Senate Republican leader Mitch McConnell said his colleagues were unwilling to sign a “blank cheque”.
“Hopefully there is still time for an agreement of some kind that saves the taxpayers from a wholly preventable economic crisis.”
In the Senate chamber on Thursday, Harry Reid said the requirement to get at least 60 of 100 votes to move to a vote on any legislation almost certainly doomed any new plan unless Republicans gave it strong backing.
“It looks like that [the fiscal cliff] is where we’re headed,” Harry Reid said.
The term fiscal cliff refers to the combination of almost $600 billion of tax rises and spending cuts due to come into force on January 1st 2013 if Congress does not pass new legislation.
Sweeping tax cuts passed during the presidency of George W. Bush will expire, eventually affecting people of all income levels, and many businesses.
Other tax cuts and benefits to expire include:
A 2010 payroll tax cut, the expiration of which would prompt immediate wage-packet cuts
Benefits or the long-term unemployed
Compensation for doctors treating patients on federal healthcare programmes
Inheritance taxes are also likely to be affected if no deal is reached.
In addition, spending cuts mandated by a law passed to break a previous fiscal impasse in Congress will come into force, affecting both military and domestic budgets.
The cuts are expected to affect federal government departments and the defence sector, as well as hitting unemployment insurance and veterans’ support.
President Barack Obama has cut short his holidays in Hawaii and is flying to Washington to try to reach a deal to avoid the so-called “fiscal cliff”.
Unless a compromise is found, tax increases and huge spending cuts come into force on 1 January, threatening to tip the US back into recession.
However, Democrats and Republicans are still at loggerheads over the issue.
Meanwhile, the US Treasury is to take extraordinary measures to delay reaching a 31 December borrowing limit.
In a letter to Congress, Treasury Secretary Timothy Geithner said it would take accounting measures to save about $200 billion to prevent reaching the $16.4tn borrowing limit.
Timothy Geithner said this would prevent the government from reaching the borrowing limit for about another two months.
President Barack Obama has cut short his holidays in Hawaii and is flying to Washington to try to reach a deal to avoid the fiscal cliff
This $16.4 trillion is the amount the government is allowed to borrow to finance its operations.
Barack Obama is expected to meet Republican leaders again to try to negotiate a solution, although no new date has been announced.
Failure to do so could damage the US and global markets, and threatens to send the US economy into recession.
The two sides remain far apart on the fiscal cliff’s $600bn in tax rises and spending cuts, but analysts say a short-term deal may be agreed that will postpone the cuts until spring.
On Wednesday, the Republican House of Representatives Speaker John Boehner called on the Democrat-led Senate to come up with legislation on how it would avoid the cliff, and pass it to the House for consideration.
However, a senior administration official said it was up to Republican leaders not to stand in the way of an agreement.
Despite this, there is little sense of urgency in the capital – the corridors of Congress are silent.
President Barack Obama will make a statement on the economy later, setting the stage for a political showdown over a looming budget crisis.
Barack Obama is expected to discuss the so-called fiscal cliff, a package of tax rises and spending cuts due early next year unless Congress acts.
Budget analysts warn the US will tip into recession unless a deal is struck.
Barack Obama has repeatedly called for the wealthy to pay more taxes, but such a plan is anathema to Republicans.
The fiscal cliff would see Bush-era tax cuts expire at the end of 2012, combined with automatic, across-the-board reductions to military and domestic spending.
The International Monetary Fund has repeatedly warned that failure by US lawmakers to reach a deal would deepen uncertainty over the global economy.
Investor concerns over the issue have been partly blamed for two straight days of losses on financial markets.
John Boehner, leader of the Republican-controlled House of Representatives, told ABC News on Thursday: “Raising tax rates is unacceptable.
“Frankly, it couldn’t even pass the House. I’m not sure it could pass the Senate.”
John Boehner reiterated his opposition to tax rises in a news conference on Friday morning.
He spoke shortly before Barack Obama was due to deliver his statement from the East Room of the White House at 13:05.
Barack Obama is expected to discuss the so-called fiscal cliff, a package of tax rises and spending cuts due early next year unless Congress acts
The president’s statement could set the tone for his second-term working relationship with Republicans, whom he has battled repeatedly over the last four years.
A White House official said the president’s oft-stated call for tax rises on the wealthy has been vindicated by his resounding victory over Republican challenger Mitt Romney in Tuesday’s election.
“One of the messages that was sent by the American people throughout this campaign is … [they] clearly chose the president’s view of making sure that the wealthiest Americans are asked to do a little bit more in the context of reducing our deficit in a balanced way,” senior White House adviser David Plouffe was quoted by Reuters news agency as saying.
Barack Obama’s position has been that taxes should rise on earnings above $250,000.
John Boehner says his party is willing to countenance cutting loopholes and special exemptions, but only in exchange for an overhaul of the tax code.
Republican lawmakers also want cuts to federal healthcare programmes such as Medicare, Medicaid and food-stamp assistance for the poor.
A Congressional Budget Office (CBO) report published on Thursday warned that the US economy would fall back into recession if no deal were struck on the fiscal cliff.
The analysis projected that the package of tax rises and spending cuts would cut the ballooning US deficit by $503 billion through to next September, but also shrink the economy by 0.5% and cost millions of jobs.
Meanwhile, as Barack Obama turns his attention to shaping a second term in office his administration is expected to undergo a shake-up in the coming weeks.
Secretary of State Hillary Clinton, Defence Secretary Leon Panetta and Treasury Secretary Timothy Geithner are among those expected to leave their posts.
Speculation has been swirling in Washington over possible replacements, with Democratic Senator John Kerry among those tipped as a substitute for Hillary Clinton.
Meanwhile, Republicans are trying to find out what went wrong their presidential election campaign.
The party’s officials said they would poll voters extensively in battleground states, as well as holding focus groups and discussions with supporters.
The review would not attempt to alter the party’s ideological base, Republican National Committee spokesman Sean Spicer told the Washington Post.
“This is no different than a patient going to see a doctor,” Sean Spicer said.
What is the fiscal cliff?
• Under a deal reached last year between President Barack Obama and the Republican-controlled Congress, existing stimulus measures – mostly tax cuts – will expire on 1 January 2013
• Cuts to defence, education and other government spending will then automatically come into force – the “fiscal cliff” – unless Congress acts
• The economy does not have the momentum to absorb the shock from going over the fiscal cliff without going into recession