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Special report: U.S. "fiscal cliff" fix plan averts immediate pain, leaves problems unresolved

English.news.cn   2013-01-02 19:06:20            
 • The U.S. Congress has finally muddled through the recession-inducing "fiscal cliff" with a stopgap bill.
 • Critics say the last-minute tax deal would do little to reduce the deficit.
 • The bill pulled the nation back from the edge of one cliff, but it sent the Congress toward another.



WASHINGTON, Jan. 1 (Xinhua) -- The U.S. Congress has finally muddled through the recession-inducing "fiscal cliff" with a stopgap bill. The bipartisan plan, which blocked most impending tax increases and put off spending cuts, left a slew of issues unresolved. The United States averted the worst case scenario of the fiscal woes, but another budget battle may lie just ahead.

A HARD-FOUGHT COMPROMISE

By a vote of 257 to 167, the U.S. House of Representatives approved a Senate bill late on Tuesday night, ending weeks of political bickering around the "fiscal cliff" -- massive tax hikes and across-the-board spending cuts that are due to take effect on Tuesday.

The deal would raise income-tax rates for the first time in 20 years, maintain unemployment benefits and delay spending cuts for two months.

It will be presented to the U.S. President Barack Obama for his signature and hand him a political triumph as he honored his campaign promise of asking the wealthy to pay a little more.

The plan would raise tax rates to 39.6 percent on income over 400,000 dollars for individuals and 450,000 dollars for households. It shattered the Republican anti-tax orthodoxy by raising rates on the wealthiest and shielded millions of middle-class tax payers from tax increases.

The House vote came less than 24 hours after the Senate overwhelmingly approved the legislation. The Republicans, who were uneasy with the lack of spending cuts, had considered to amend the bill by adding about 300 billion dollars in spending cuts over the next decade before they finally moved toward a up-or-down vote on the unchanged bill.

At a White House press conference shortly after the vote, Obama said the deal "is just one step in the broader effort to strengthen our economy and broaden opportunity for everybody. The fact is the deficit is still too high, and we're still investing too little in the things that we need for the economy to grow as fast as it should."

Obama acknowledged that the "messy nature" of the process over the past several weeks in resolving the "fiscal cliff" has made businesses more uncertain and consumers less confident.

He stressed that he was "very open to compromise" in finding ways to curb the costs of major U.S. entitlement programs and cutting unnecessary spending in U.S. government in the future.

A SCALE-BACK PLAN

The White House analyzed that raising taxes on the wealthiest 2 percent of Americans would raise 620 billion dollars in revenues over 10 years. However, the thorny issue of entitlement program reform was untouched, making the plan pale by comparison with the "grand bargain" originally envisioned both by the President and the Congressional leaders.

The White House had called for roughly 1.2 trillion dollars in new tax revenues over 10 years, and the Republicans had wanted more fundamental changes to the entitlement programs, the biggest factor for the swelling deficit.

The nonpartisan Congressional Budget Office predicted that the legislation would add roughly 4 trillion dollars to federal deficit over a decade compared to the current law related with the "cliff." This is largely because of the extension of Bush-era tax rates for most American households.

Critics say the last-minute tax deal would do little to reduce the deficit, leaving hard decisions about Medicare and Social Security ahead.

Obama expressed frustration about the failure to craft a larger package deal. He said on Monday that he would have preferred to solve all these problems in the context of a bigger agreement, "but with this Congress, that was obviously a little too much to hope for at this time."

Obama has insisted on reducing the U.S. deficit in a balanced and responsible way, and argued that revenues have to be part of the equation in turning off the automatic spending cuts. The Republicans, however, wanted tax increases to help reduce the deficit.

ANOTHER SHOWDOWN AROUND CORNER

The compromise pulled the nation back from the edge of one cliff, but it sends the Congress toward another. Experts cautioned that a fiscal deal on Tuesday would only avert the immediate pain, and the two-month suspension of spending cuts would set up another political showdown, which would be perplexed by a possible fight over the debt ceiling.

The U.S. Treasury Department said last week the federal government would reach its debt limit of 16.4 trillion dollars on Dec. 31. It will take certain extraordinary measures to temporarily postpone the date, which is expected to help the federal government run for about two months.

As soon as late February, the relief from painful spending cuts would expire and the debt ceiling would hit again as the Treasury runs out of ways to postpone it.

Obama has signaled his hope to solve the fiscal problems in stages but warned that he will not have another fight with the Congress over the debt limit. But the divisions among lawmakers would remain after the newly-elected Congress is sworn in. The political brinkmanship would continue to prevail in Washington.

Lingering uncertainty over U.S. tax and spending policy has unnerved investors and depressed business activity for months.

Economists have warned that the United States needs both pro-growth tax reforms and spending cuts to put its long-term budget on a sustainable trajectory.

"Even if the 'cliff' crisis is avoided by cobbling together a hasty deal, the more serious mistake would be failure follow-up with policies to keep national debt from rising faster than the economy can grow," said Alice M. Rivlin, a senior fellow at Brookings, a Washington-based think tank.

"It would be really stupid to get past the artificial problem and ignore the real danger," she added.

Related:

U.S. Senate "fiscal cliff" bill adds 4 trillion USD deficit: CBO

WASHINGTON, Jan. 1 (Xinhua) -- The Congressional Budget Office (CBO) on Tuesday said the Senate-passed bill to avert the "fiscal cliff" would add roughly 4 trillion dollars to federal deficit over a decade, largely because it would extend low tax rates for most Americans. Full story

U.S. Congress misses "fiscal cliff" deadline despite Senate bill

WASHINGTON, Jan. 1 (Xinhua) -- The U.S. Senate passed a plan to avert the "fiscal cliff" at midnight Monday, which would extend current tax rates for most American households and postpone the automatic spending cuts that threaten a new recession. Full story

U.S. Senate passes "fiscal cliff" deal

WASHINGTON, Jan. 1 (Xinhua) -- The U.S. Senate passed a plan to avert the "fiscal cliff" at midnight Monday, which would extend current tax rates for most American households and postpone the automatic spending cuts that threaten a new recession. Full story

Commentary: Over the "cliff," the real devil is "fiscal abyss"

BEIJING, Jan. 1 (Xinhua) -- After coming too dangerously close to the "fiscal cliff," U.S. politicians have reportedly reached a deal to avoid sharp tax increases and deep spending cuts. Full story

White House, Republicans reach deal on fiscal cliff: U.S. media

WASHINGTON, Dec. 31 (Xinhua) -- The White House and Senate Republicans have reached a deal to avert the "fiscal cliff," U.S. media reported Monday night. Full story

Commentary: Frustrating fiscal talks expose deficiencies of U.S. political system

BEIJING, Jan. 1 (Xinhua) -- The American people were once better known for their ability to make tough choices on difficult issues. Full story

 

Editor: Bi Mingxin
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