A WEARY Congress sent President Barack Obama legislation to avert the economy-threatening “fiscal cliff” of middle-class tax increases and across-the-board spending cuts yesterday, hours before financial markets reopened after the New Year holiday.
The Bill’s passage on a 257-167 vote in the House of Representatives sealed a hard-won political triumph for the president less than two months after he secured re-election while calling for higher taxes on the wealthy.
Moments later, Mr Obama strode into the White House briefing room and declared: “Thanks to the votes of Republicans and Democrats in Congress, I will sign a law that raises taxes on the wealthiest 2% of Americans while preventing tax hikes that could have sent the economy back into recession.”
He spoke with Vice President Joe Biden at his side, a recognition of the former senator’s role as the lead Democratic negotiator in final compromise talks with Senate Republican leader Mitch McConnell of Kentucky.
The economic as well as political stakes were considerable. Economists have warned that without action by Congress, the tax increases and spending cuts that technically took effect with the turn of the new year at midnight could cause unemployment to surge and send the economy into recession.
This, in turn, could have had serious implications for the UK and the rest of the global economy.
Traders in London welcomed the agreement with the FTSE 100 Share Index showing a significant rise.
Stock markets in Europe and Asia also reacted positively to the news.
The extraordinary pre-dawn House vote took place less than 24 hours after the Senate passed the measure in the pre-dawn hours on New Year’s Day.
The legislation cleared the Senate hours after Mr Biden and Mr McConnell, veteran negotiators, sealed a deal.
In addition to neutralising middle-class tax increases and spending cuts that technically took effect at midnight on Monday, the legislation raises tax rates on incomes over $400,000 (£247,000) for individuals and $450,000 (£278,000) for couples. Remarkably, in a party that swore off tax increases two decades ago, dozens of Republicans supported the Bill in both houses of Congress.
The Senate had approved the measure on a vote of 89-8 and in the interim, rebellious House conservatives demanded a vote to add significant spending cuts to the measure. But in the end they retreated.
But the measure split the upper ranks of the Republican leadership in the House.
Speaker John Boehner of Ohio voted in favour, while majority leader Eric Cantor of Virginia and California Rep Kevin McCarthy, the party’s whip, opposed the Bill.
Supporters of the Bill in both parties expressed regret that it was narrowly drawn and fell far short of a sweeping plan that combined tax changes and spending cuts to reduce government deficits.
That proved to be a step too far in the two months since Mr Obama called congressional leaders to the White House for a post-election stab at compromise.
Majority Republicans did their best to minimise the Bill’s tax increases, just as they abandoned their demand from earlier in the day to add spending cuts to the package.
“By making Republican tax cuts permanent, we are one step closer to comprehensive tax reform that will help strengthen our economy and create more and higher pay cheques for American workers,” said Rep Dave Camp of Michigan, chairman of the tax-writing House Ways and Means Committee.
He urged a vote for passage to “get us one step closer to tax reform in 2013” as well as attempts to control spending.
House Democratic leader Nancy Pelosi also said the legislation included “permanent tax relief for the middle class” and summoned members to provide bipartisan support as the Senate did.
The Bill would prevent an expiration of extended unemployment benefits for an estimated 2m jobless, renew tax breaks for businesses and renewable energy purposes, block a 27% cut in fees for doctors who treat elderly Medicare patients, stop an automatic pay rise for politicians from taking effect in March and head off a threatened rise in milk prices.
It would stop $24bn (£14.8bn) in spending cuts set to take effect over the next two months, although only about half of that total would be offset with spending reductions elsewhere in the budget.
But even with enactment of the legislation, taxes are on the rise for millions.
A two percentage-point temporary cut in the Social Security payroll tax, originally enacted two years ago to stimulate the economy, expired with the end of 2012. Neither Mr Obama nor Republicans made a significant effort to extend it.
The fiscal cliff measure had cleared the Senate on a lopsided pre-dawn New Year’s vote of 89-8, and House Republicans spent much of the day struggling to escape a political corner they found themselves in.
“I personally hate it,” Rep John Campbell of California, said of the measure, giving voice to the concern of many Republicans that it did little or nothing to cut spending.
Mr Cantor, the number two House Republican, told reporters at one point: “I do not support the Bill. We are looking, though, for the best path forward.”
Within hours, Republicans abandoned demands to add spending cuts to the Bill and agreed to a simple yes-or-no vote on the Senate-passed measure.
They feared that otherwise the Senate would refuse to consider any alterations, sending the Bill into limbo and saddling Republicans with the blame for a whopping middle-class tax increase.
One Senate Democratic leadership aide said Majority leader Harry Reid would “absolutely not take up the Bill” if the House changed it.