U.S. CONGRESS APPROVES FISCAL CLIFF DEAL / THE FINANCIAL TIMES

Last updated:January 2, 2013 9:25 am

 

US Congress approves fiscal cliff deal

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House Speaker John Boehner (centre) leaves a meeting with Republicans at US Capitol

By Richard McGregor and Shahien Nasiripour in Washington



The drama over the fiscal cliff in the US ended late on Tuesday when the House of Representatives passed legislation raising taxes for the wealthiest Americans after a topsy-turvy day on Capitol Hill.



The bill, reflecting a bipartisan compromise reached earlier in the Senate, passed the House comfortably by 257 votes to 167, but only because it was supported overwhelmingly by Democrats.


A majority of Republicans voted against the bill, a blow to the authority of the Republican House speaker, John Boehner.


President Barack Obama, speaking at the White House soon after the bill’s passage, said: “Today’s agreement enshrines a principle into law that the deficit must be reduced in a way that is balanced.”


News of the deal sent Asian markets higher as traders began 2013 in bullish mood. The FTSE Eurofirst index of leading European stocks had risen by 1.3 per cent by mid-morning in London on Wednesday.


Far from ending the country’s budget battles, however, the passage of the legislation simply sets the stage for fresh confrontations in the coming months over the deficit and economic policy.



The White House and Senate Republicans forged an agreement solely on the issue of taxes, delaying a tougher decision on spending cuts that will be fought out in the coming months.


“Before you start pouring the champagne to toast the deal, remember, the minute the House vote ends, the countdown to the next crisis begins,” said David Rothkopf of Foreign Policy.


Mr Obama reiterated his view that he would not negotiate spending cuts along with the US debt ceiling, something that the Republicans believe gives them leverage to cut government outlays.


Mr Boehner and Mitch McConnell, the Republican minority leader, made their intentions clear immediately after the House vote, saying the focus should now shift 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,” Mr Boehner said.


Republicans in the House of Representatives had initially balked at supporting the bipartisan Senate compromise, with the party’s leadership divided over how to proceed.


But after the Senate indicated it would not consider any amendments to its bill raising taxes for households earning more than $450,000, Mr Boehner agreed to take the compromise to a vote in the House just after 10pm on Tuesday.


Republicans in the House were angry that the Senate deal forged between the White House and the chamber’s Republican leadership focused solely on taxes and wanted to amend the bill to include spending cuts.


Steve LaTourette, a departing Republican congressman from Ohio, and a Boehner ally, called the Senate’s compromise a deal “passed by sleep-deprived octogenarians”.


The US has averted going over the fiscal cliff but fresh political battles loom over spending cuts, the deficit and economic policy.


Congress had until Thursday to pass a deal in both houses as the legislation codifying any budget agreement would lapse with the swearing-in of the new Congress, elected in November.



In the absence of a deal, automatic tax rises and spending cuts of $600bn would kick in, threatening to tip the world’s largest economy back into recession.


The Senate bill split the Republican leadership in the House: both Mr Boehner’s influential deputy, Eric Cantor, and Kevin McCarthy, the Republican whip, did not support it. Mr Boehner voted for the bill, as did Paul Ryan, the chairman of the budget committee and the running mate of the party’s presidential candidate Mitt Romney.


The US has already hit its legal borrowing limit of $16.4tn but the Treasury, through what it calls “extraordinary measures”, is able to find funds to service the national debt for about two months.



Despite the controversy over the deal, only 0.7 per cent of the workforce would be hit by the higher income tax rates on the wealthy, according to the Tax Policy Center.


But the non-partisan centre in Washington said 77 per cent of workers would face higher taxes once the ending of a payroll tax holiday and other measures were taken into account.


Erskine Bowles and Alan Simpson, who headed a deficit commission for Mr Obama, said in a statement: “The deal approved today is truly a missed opportunity to do something big to reduce our long-term fiscal problems, but it is a small step forward in our efforts to reduce the federal deficit.”



“The fiscal cliff was in many ways a self-made deadline to make [policy makers] face the hard choices and they once again managed to duck all of them.” said Maya MacGuineas, a leader of advocacy group Campaign to Fix the Debt.


Fifteen minutes after speaking at the White House, Mr Obama left to take Air Force One to return to his holidays in Hawaii.


Additional reporting by Tom Burgis in London

 

Copyright The Financial Times Limited 2013.