US Senate approves Bill to avoid fiscal cliff

The US Senate overwhelmingly approved a legislation to avoid the so-called fiscal cliff in the wee hours of Tuesday, with 89 voting in favour and 8 against.

The proposal would extend tax rates on annual household income under $4,50,000 and postpone automatic spending cuts for two months. The Bill will now have to be passed by the House of Representatives.

“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,” US President Barack Obama said.

Senate vote

He was speaking moments after the Senate vote, which came after some tough late night negotiations between Republican and Democratic leadership and the White House to arrive at a last minute deal brokered by US Vice-President Joe Biden.

The agreement passed by the Senate protects 98 per cent of Americans and 97 per cent of small business owners from a middle-class tax hike.

“This agreement will also grow the economy and shrink our deficits in a balanced way — by investing in our middle class, and by asking the wealthy to pay a little more,” Obama said.

While the Senate met in the wee hours of Tuesday — some two hours after US technically hit the fiscal cliff — the legislation is yet to be passed by the House of Representatives, which is not due to meet before Tuesday noon local time (late Tuesday night IST).

It is only after House passes the Bill that it goes to the White House for US President Barack Obama to sign into law.

The House is to debate the package beginning Tuesday afternoon. Since any or all of the current provisions could be amended or rejected, the final shape of the deal is still not certain.

Fiscal cliff deal

However, Congressional leaders and White House expressed confidence that they can neutralise the fiscal cliff, which technically came into effect mid-night.

This is by passing the legislation and getting it signed into law by US President before it can have an adverse effect on the American economy. In all, it would have involved $600 billion in tax hikes and spending cuts in the New Year.

Obama said tonight’s agreement asks millionaires and billionaires to begin to pay their fair share for the first time in 20 years.

“As promised, that increase will be immediate, and it will be permanent. “There’s more work to do to reduce our deficits, and I’m willing to do it.

“But tonight’s agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans,” he said.

“This deal — while not perfect — at least gives families and businesses the certainty they need to make spending plans and budgets for the new year,” said Senator Mark Begich.

Top Republican Senator John Cornyn said he voted for this Bill because it prevents a huge tax increase on 99 per cent of all Americans.

“Nonetheless, I am dismayed at the lack of seriousness by the President on dealing with the core issues of our fiscal problems.

“Our spending is unsustainable and it is high time the President and his party engage in meaningful dialogue to get this county’s spending under control,” he said.

CBO report

Congressional Budget Office, in a report, had predicted that fiscal cliff could dampen the economic growth by 0.5 per cent.

That could tip the US economy into a recession and drive unemployment from its current 7.7 per cent back to over 9 per cent, the non-partisan CBO estimated.

Automatic spending cuts

The Bill postpones the automatic spending cuts known as the sequester for two months and offsets the $24-billion cost of the delay with a mix of spending cuts and new revenues.

Bush-era tax rates

The legislation as passed by the Senate with bipartisan support would permanently extend the Bush-era income-tax rates on individual income up to $400,000 and family income up to $450,000.

It also sets permanently the estate tax rate at 40 per cent, up from 35 per cent, and exempts inheritances below $5 million.

In addition to an extension of unemployment benefits for one year; it extends 2009 stimulus provisions including the earned income-tax credit, child tax credit and college tax credit for five years.

“It is critically important that the US Senate has come together to prevent tax increases on middle-class families and small businesses, extend unemployment benefits for those struggling to find a job, and end tax breaks for millionaires our country can no longer afford.

“This agreement accomplishes providing certainty for families and businesses and allowing our economic recovery to continue,” said Senator Debbie Stabenow, Chairperson of the Senate Agriculture, Nutrition and Forestry Committee.

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