Radio Sandwell News

US Senate passes key deal to avoid tax rises

2013-01-01 10:31:28

Barack Obama

The US Senate has approved a deal to avert 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 little 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 (05:00 GMT).

Without a deal, huge tax rises for virtually all working Americans automatically will kick in.

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 (£246,000) - up from the $250,000 level Democrats had originally sought.

A huge spending cut that would see $1.2tn cut from the federal budget over 10 years has been deferred for two months, allowing Congress and the White House to reopen negotiations.

Overnight the Senate overwhelmingly approved the compromise bill by 89-8. The House of Representatives is due to consider it, although no vote has been scheduled so far.

If congressional approval is completed over the new year holiday, the impact is likely to be minimal.

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. "

Earlier, Mr Obama said he would have preferred to resolve the fiscal cliff through a "grand bargain" that dealt with both long-term spending and tax issues.

Source: bbc.co.uk

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