Obama reaches tentative fiscal cliff deal

An agreement to prevent the US falling over the so-called fiscal cliff has been approved by the Senate, but not yet by the House of Representatives.

After the tussle between the White House and the Republican minority in the Senate, which showed every sign of crude horse-trading, and in the face of opposition by the radical right in the House of Representatives, a tentative agreement was reached yesterday to prevent the US going over the fiscal cliff today: the automatic expiration of Bush-era tax cuts and draconian cuts in the federal budget.

Without the agreement, the US economy would today face a double blow: steep tax hikes and a sharp reduction in federal cash flows to the economy - a sure recipe for a recession. So if an agreement has been reached, there is no fall over the cliff, right? Yes and no. Are you confused? Continue reading.

Yesterday's deal between Vice President Joe Biden, who headed the negotiations on behalf of the White House, and Senate Minority Leader Mitch McConnell, is designed to prevent this double blow to the US economy, which has captured the headlines in recent months. But the agreement was reached too late.

Biden and McConnell shook hands a few hours before the midnight marking the beginning of 2013, and the Senate passed the agreement in an 89-8 vote, after midnight. But the House of Representatives, and its Tea Party members, has yet to support the document. Only after the House passes the bill will it be possible to lay it on the president's desk for his signature.

The House of Representatives leaders had already said that there would be no vote on the bill before midnight. However, House Speaker John Boehner (Republican, Ohio) has pledged in a written statement to bring it to a vote within days.

The Senate agreement also includes postponing the sequester (budget cuts) until March, under an agreement to raise $12 billion in new taxes and $12 billion in fresh savings from the Pentagon and domestic programs.

Although the House has yet to vote on the bill, there is no immediate cause for worry, as it will apply retroactively from January 1.

But the question remains whether the House of Representatives, which serves as a stage for some of the most right-wing legislators in Congress, will approve the bill. There are already murmurings from the Republican back benches in the House of Representatives, because the bill included too many concessions to the Democrats, and the Republicans were forced to sacrifice their principles on the altar of the liberal gods.

At first glance, it seems that Biden, an old fox, succeeded in bending McConnell to his will and win concessions which were previously unimaginable, beginning with raising tax rates on the wealthy, albeit not as much as President Barack Obama wanted. A political commentator said yesterday that had he raised this forecast to the White House a few days ago, he would have been asked what he was smoking.

The main point of the agreement passed by the Senate was to raise the tax rate on individuals earning more than $400,000 a year and on couples earning more than $450,000 from 35% to 39.6%. In addition, certain tax credits and tax breaks will not apply on incomes of over $200,000. The estate tax will also rise, but by less than the White House wanted. The Republicans' goal of cutting social benefits did not materialize, and unemployment benefits will also be extended.

Published by Globes [online], Israel business news - www.globes-online.com - on January 1, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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