The U.S. President has hailed a deal reached to avoid the fiscal cliff of huge taxes and spending cuts. The U.S. House of Representatives passed the bill by 257 votes to 167. He termed this measure as "just one step in the broader effort to strengthen the economy". His Christmas holiday in Hawaii was interrupted due to the priority accorded to the urgency of reaching the fiscal cliff deal. He stated that in signing this law he was fulfilling a campaign pledge.
The President has expressed his intention to sign a law that raises taxes on the wealthiest 2 percent of Americans while preventing a middle class tax hike. He believed that if the focus was laid on the interest of the country instead of politics, then this could be termed as the path forward.
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.
Following are some highlights:
• The compromise deal extends the tax cuts for Americans earning under $400,000 up from the $250,000 level Democrats had originally sought.
• 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.
The House vote results showed that 172 Democrats and 85 Republicans voted in favor of the bill. A majority of Republicans, 151 in total along with 16 Democrats voted against it.
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.
Failure to reach a deal may have put the U.S. economy back into recession. Had the House not acted, broad tax increases would have kicked in. In addition, $110 billion in automatic cuts to domestic and military spending would have taken place. The fiscal deal shows compromise and a patchwork of economic measures. It should not be seen with a prism of victory and defeat. The crux of this deal is a higher tax rate for families earning a combined income of $ 400,500. The President had to raise his definition for the rich; he initially wanted those earning more than $ 250,000 to pay more taxes.
The resolution for the year 2013 for the government and law-makers should be initiation of "relentless" efforts in order to bring the U.S. economy back on track.
Sources:
CNN Headline News (January 2, 1013)
BBC World News (January 2, 2013)
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