Last updated:January 1, 2013 9:11 am
US Senate approves fiscal cliff deal
The US Senate voted early on Tuesday morning to approve a bipartisan budget deal negotiated with the White House to avert the fiscal cliff after days of tense negotiations conducted in the shadow of the end-of-year deadline.
To become law, the deal will now have to pass through the Republican-controlled House of Representatives, which will convene on Tuesday afternoon.
Although the votes come after the midnight deadline, the legislation can be backdated to avoid the impact of going “off the cliff”, which would have resulted in sharp spending cuts and across-the-board tax rises.
Following the Senate vote, President Barack Obama called for the House of Representatives to pass the deal.
“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,” Mr Obama said in a statement, Reuters reported.
John Boehner, the Republican House speaker, promised in a statement early on Tuesday morning that his members would consider the legislation once they had “been able to review it”, but made no commitment to support it.
The final Senate vote for the Taxpayer Relief Act was 89-8.
Only a handful of senators from both parties voted against the compromise, negotiated by Joe Biden, the vice-president, and Mitch McConnell, the Republican minority leader.
Mr McConnell said: “I know I can speak for my entire conference when I say we don’t think taxes should be going up on anyone, but we all knew that if we did nothing they’d be going up on everyone today. We weren’t going to let that happen.”
The deal, once approved by both houses, will not mean an end to the pitched fights between the White House and Democrats and Republicans over budget issues, as it only addresses the tax issues on the table.
The more difficult negotiations, over spending cuts, have been effectively postponed for two months.
Republicans believe they will have greater leverage to force the administration and Democrats to reduce spending during the debate over lifting the US debt ceiling, likely sometime in February.
Tim Geithner, the Treasury Secretary, announced on Monday that the US had officially hit its borrowing limits, but that the Treasury has had tools to harvest enough funds to pay the country’s debts for six weeks to two months.
The Senate deal lifts tax rates for households earning more than $450,000, marking the first time conservatives have agreed to higher taxes in about two decades.
The prospect of a deal to avert at least the middle-class tax rises buoyed equity markets on Monday. The US benchmark S&P 500 recovered almost all of last week’s losses in its final trading session of the year, closing at 1,426.19, up 1.7 per cent, snapping a five-session losing streak.
Trading has been hypersensitive to headlines emerging from Capitol Hill in a thin holiday market. All of the issues relating to the fiscal cliff – raising revenues as well as cutting spending – would not be resolved by the deal, Mr Obama said earlier on Monday before the vote, but “maybe we can do it in stages”.
In comments that angered Republicans, Mr Obama foreshadowed that in future negotiations with Republicans he would demand more revenues to offset spending cuts.
.
“If Republicans think I will finish the job of deficit reduction through spending cuts alone,” Mr Obama said, they have “another thing coming.”
Some Republican lawmakers openly bristled at the president’s language. “I know the president has fun heckling Congress,” Senator Bob Corker of Tennessee told reporters, adding that “he probably lost some votes”.
In the absence of a deal, automatic tax rises and spending cuts of $600bn would kick in from Tuesday – a set of measures that threaten to tip the world’s largest economy back into recession.
Additional reporting by Stephen Foley in New York
To become law, the deal will now have to pass through the Republican-controlled House of Representatives, which will convene on Tuesday afternoon.
Although the votes come after the midnight deadline, the legislation can be backdated to avoid the impact of going “off the cliff”, which would have resulted in sharp spending cuts and across-the-board tax rises.
Following the Senate vote, President Barack Obama called for the House of Representatives to pass the deal.
“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,” Mr Obama said in a statement, Reuters reported.
John Boehner, the Republican House speaker, promised in a statement early on Tuesday morning that his members would consider the legislation once they had “been able to review it”, but made no commitment to support it.
The final Senate vote for the Taxpayer Relief Act was 89-8.
Only a handful of senators from both parties voted against the compromise, negotiated by Joe Biden, the vice-president, and Mitch McConnell, the Republican minority leader.
Mr McConnell said: “I know I can speak for my entire conference when I say we don’t think taxes should be going up on anyone, but we all knew that if we did nothing they’d be going up on everyone today. We weren’t going to let that happen.”
The deal, once approved by both houses, will not mean an end to the pitched fights between the White House and Democrats and Republicans over budget issues, as it only addresses the tax issues on the table.
The more difficult negotiations, over spending cuts, have been effectively postponed for two months.
Republicans believe they will have greater leverage to force the administration and Democrats to reduce spending during the debate over lifting the US debt ceiling, likely sometime in February.
The Senate deal lifts tax rates for households earning more than $450,000, marking the first time conservatives have agreed to higher taxes in about two decades.
The prospect of a deal to avert at least the middle-class tax rises buoyed equity markets on Monday. The US benchmark S&P 500 recovered almost all of last week’s losses in its final trading session of the year, closing at 1,426.19, up 1.7 per cent, snapping a five-session losing streak.
Trading has been hypersensitive to headlines emerging from Capitol Hill in a thin holiday market. All of the issues relating to the fiscal cliff – raising revenues as well as cutting spending – would not be resolved by the deal, Mr Obama said earlier on Monday before the vote, but “maybe we can do it in stages”.
In comments that angered Republicans, Mr Obama foreshadowed that in future negotiations with Republicans he would demand more revenues to offset spending cuts.
.
“If Republicans think I will finish the job of deficit reduction through spending cuts alone,” Mr Obama said, they have “another thing coming.”
Some Republican lawmakers openly bristled at the president’s language. “I know the president has fun heckling Congress,” Senator Bob Corker of Tennessee told reporters, adding that “he probably lost some votes”.
In the absence of a deal, automatic tax rises and spending cuts of $600bn would kick in from Tuesday – a set of measures that threaten to tip the world’s largest economy back into recession.
Additional reporting by Stephen Foley in New York
Copyright The Financial Times Limited 2013.
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