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 354.

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

  • rate this
    +1

    Comment number 339.

    I am sick of the uncertainty that American political power plays between the democrats and the republicans keep causing the rest of the world, this plan is like using a puncture repair kit on an inner tube made of repair kits. We must hold a non-NYC Emergency UN meeting and demand US internal political power plays end and prepare a global “PLAN B” devoid of a US presence to force this

  • 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
    -1

    Comment number 230.

    Now is not the time to make cuts. The US economy needs to be kick started first. Then cuts can be made in the next few years.

    However there needs to be a plan to get the US out of this hole which has taken a century to dig

  • rate this
    -4

    Comment number 192.

    Another feather in President Obama's cap. Getting to grips with the impending fiscal cliff, preventing financial turbulence deserve high praise. America needs to come out of this costly gridlock. Legislators need to get priorities right. The poor and the middle class need urgent support. The super rich should pay their fair share of taxes. Fortunately Obama did not cave in to Republican demands.

 

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