THE UNITED STATES Senate has approved a deal which hopes to avert the so-called ‘Fiscal Cliff’ – a series of tax increases and spending cuts – which could help to stop the country from falling back into recession.
The White House and Senate Republicans worked through the night to agree the deal which was eventually approved on the Senate floor by 89 votes to 8.
However, the new measures cannot take effect immediately – because the House of Representatives did not hang around until after midnight to consider a vote on the plans.
The House is due to reconvene later today to vote on the proposals, in one of its final acts: the term of office of its current members ends tomorrow night, with a new House – featuring dozens of new members – convening on Thursday.
The deal will see an extension on tax cuts for people earning under $400,000 (€302,000) per year, in a renewal of measures first introduced by George W Bush.
The measures approved by the Senate also included an increase in inheritance taxes on large estates, an increase in capital taxes, and a short-term extension of unemployment benefits.
The more contentious aspects of the ‘Fiscal Cliff’, however – an automatic, across-the-board cut of about 9 per cent in government spending – have simply been deferred, offering Democrats and Republicans an extra two months to find alternative ways of saving the money.
The fact that the vote came hours after the December 31 deadline is largely irrelevant, as few of the new measures will take effect today, due to January 1 being a public holiday in the United States.
If the measures had been allowed to take effect, however, the massive spending cuts and the dramatic dent in US household spending would have almost certainly dragged the country back into a recession – and possibly take the rest of the world down with it.
President Obama welcomed the Senate agreement, saying it illustrated a good compromise.
“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,” Obama said in a statement after the vote.
“There’s more work to do to reduce our deficits, and I’m willing to do it.”