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.
