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- What is the fiscal cliff?
The White House and congressional Republicans have reached an agreement to avert the so-called ''fiscal cliff'' of impending tax hikes and spending cuts, a Democratic aide says.
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The measure would extend George W. Bush-era tax cuts for family incomes below $US450,000 ($436,000) and briefly avert across-the-board spending cuts set to strike the Pentagon and domestic agencies this week.
US Vice-President Joe Biden arrived at the Capitol to present a budget deal to wavering Democrats, in advance of a possible vote by 10.30pm Washington time (2.30pm Tuesday Australian eastern time), with tax increases for almost every US worker set to start tomorrow.
Mr Biden negotiated a deal with Senate minority leader Mitch McConnell to increase taxes on top earners, extend expanded unemployment benefits and prevent automatic spending cuts from taking effect for two months, according to a person familiar with the talks who requested anonymity.
Some Senate Democrats expressed reservations about the accord, which would avert more than $US600 billion in the scheduled tax increases and federal spending cuts set to start in January.
Sheldon Whitehouse, a Rhode Island Democrat, said entering the caucus meeting that he was reserving judgment on the deal Mr Biden and Senator McConnell had struck.
Asked if he could support letting taxes expire on household income over $450,000 or whether Democrats should have held out for a lower threshold, Senator Whitehouse said: ‘‘I’ll wait and see.’’
Taxpayers and investors won’t see immediate effects of the changes, which would accumulate over a matter of months. By acting early in 2013, Congress could reverse the tax and spending changes known as the fiscal cliff.
Republicans and Democrats have been battling for years now over how to solve the United States’ debt and deficit problems, with Republicans demanding both tax and spending cuts, with Democrats calling for tax increases for the wealthy combined with more limited spending cuts.
Their inability to negotiate a deal, or even pass a budget, have brought them to a series of automatic and destructively arbitrary tax hikes and spending cuts known as the fiscal cliff.
‘‘They are close, but they’re not there yet,’’ Mr Obama said earlier today. ‘‘And one thing we can count on with respect to this Congress is that if there is even one second left before you have to do what you’re supposed to do, they will use that last second.’’
People have to wonder whether the President really wants this issue resolved, or is it in his short-term political benefit for us to go over the cliff.
He warned that if Republicans thought they could get future deficit reductions solely through spending cuts ‘‘that will hurt seniors, or hurt students, or hurt middle-class families without asking also equivalent sacrifice from millionaires or companies with a lot of lobbyists . . . they’ve got another think coming.’’
Angry Republicans said that the President’s tone had almost derailed last-minute negotiations.
‘‘People have to wonder whether the President really wants this issue resolved, or is it in his short-term political benefit for us to go over the cliff,’’ said senator John McCain.
The give-and-take in the Senate suggests that both Democrats and Republicans in the upper house want to see an agreement reached before the deadline passes.
The same cannot be said with any certainty about the House of Representatives, where Republican Speaker John Boehner was last week unable to get his caucus to support tax hikes for those earning over $1 million.
Politics is played more moderately in the Senate, where members are buffered by six-year terms. But in the lower house members face election every two years. Recently Republicans in the House who have not held an aggressive anti-tax line have found themselves losing primary battles to Tea Party candidates.
Some Republicans in the House appear to be voting to defend their seats. Many of them will feel more free to vote after the deadline is passed than they were before, a result of what US commentators call the political ‘‘optics’’ of this debate.
Under earlier agreements, all of the George Bush-era tax cuts are set to expire at midnight tonight. Mr Obama had proposed allowing them to expire for all but those earning over $250,000 – around 98 per cent of the workforce. Many Republicans in Congress appear unwilling to vote for such a measure because it could be interpreted as supporting a tax increase.
But if the deadline passes, and everyone’s taxes are raised, it is likely that Democrats will immediately introduce a bill to cut taxes for the same 98 per cent of the workforce. Republicans would be more likely to vote for this, because it would mean supporting a tax cut.
- with AP, Bloomberg