The US Senate has approved a last-minute agreement reached on Monday to resolve the fiscal cliff crisis that threatens the US economy, but not in time for the December 31 deadline to avert automatic tax hikes and spending cuts.
The deal, brokered by Vice President Biden and Senate Minority Leader Mitch McConnell, passed 89 to 8 in a New Year’s morning vote in the Senate but is still pending a vote in the Republican-controlled House of Representatives, expected to take place on later on Tuesday.
If the House approves the agreement, and sends the legislation to President Obama, the economic impact of the cliff is estimated to be minimal.
Under the new deal, tax rates would increase from 35 per cent to 39.6 per cent for individual incomes over $400,000 and couples over $450,000 and tax deductions will start phasing out on incomes as low as $250,000. It will also delay automatic federal spending cuts of $110 billion for two months.
Without a deal, every US taxpayer would face steep rises, accompanied by deep cuts in federal spending programmes, especially in unemployment benefits.
“Just last month Republicans in Congress said they would never agree to raise tax rates on the wealthiest Americans,” Obama said at a news briefing. “Obviously, the agreement that’s currently being discussed would raise those rates and raise them permanently.”