The U.S. Senate overwhelmingly approved a
compromise early Tuesday to avoid the worst impact of the so-called
fiscal cliff about two hours after the midnight deadline at which the
automatic tax hikes and spending cuts came into effect.
The Senate voted 89-8 in favor of a plan that "protects 98 per cent of Americans and 97 per cent of small business owners from a middle class tax hike," President Barack Obama said.
He urged the House of Representatives, which was scheduled to consider the bill later Tuesday, to "pass it without delay."
The deal consists of a compromise on tax thresholds for removing the cuts, and a postponement of the spending cuts.
"There's more work to do to reduce our deficits," Obama said. But the agreement ensured "we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans."
The tax element would see cuts that were implemented under president George W Bush expire for individuals earning more than 400,000 dollars a year and families earning more than 450,000 dollars, according to media reports.
"While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country," Obama said.
Republicans had tried to keep all tax cuts in place even for the wealthiest, and Democrats had pushed for taxes to be hiked for anyone over a 200,000-250,000-dollar threshold.
The agreement also extends unemployment benefits for 2 million long-term unemployed and increases estate tax.
The other part of the fiscal cliff consists of cuts to all public expenditure, from social programmes to defence, by 10 per cent, due to kick in on January 1.
But the deal approved by senators early Tuesday postponed the implementation date of the cuts by two months, media reports said.
Democrats have argued in favour of making the cuts more balanced, to lessen their dampening effect on the economy.
The tax hikes and spending cuts had threatened to deal the world's largest economy a combined blow of 600 billion dollars and could have returned it to recession, experts said.
The first day of the year is a public holiday, minimizing the impact of the failure by Congress to reach a deal by the midnight deadline.
The fiscal cliff was set up in August 2011 when a divided Congress drew up a drastic fiscal plan to force it to develop a more reasonable approach by the last day of 2012.
But work on that approach was disrupted by presidential and congressional elections in November and a stream of political bickering.
The nation's debt has ballooned to 16 trillion dollars because of a number of factors over the past decade, including the Bush-era tax cuts, the wars in Iraq and Afghanistan, and a recession and financial and housing crisis.
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