President Barack Obama yesterday pressed the House of Representatives to vote in favour of a Senate-backed deal that would avert the swingeing spending cuts and soaring tax rates of America's "fiscal cliff".
The country officially passed its deadline for an agreement on new budget legislation at midnight on New Year's Eve, but after Vice-President Joe Biden and the Senate's Republican minority leader, Mitch McConnell, brokered a last-minute agreement, senators overwhelmingly approved at 2am yesterday – by 89 votes to eight.
Mr Obama, pictured, said: "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."
He claimed that the agreement "protects 98 per cent of Americans and 97 per cent of small business owners from a middle class tax hike". However, the deal, if rubber-stamped, would spell the end of the payroll tax holiday, with taxes on 160 million Americans, many of them middle class or poor, rising from 4.2 per cent to 6.2 per cent.
The House convened at noon yesterday, and theoretically has until the end of today to vote on the measures before the new Congress elected in November takes office. But the Bill's passage is not guaranteed. The House Speaker John Boehner, a Republican, has yet to endorse the legislation and many of his party colleagues are expected to oppose it.
The compromise reached by the Senate would see tax rates rise for individuals earning more than $400,000 per year, and families earning more than $450,000 per year. This represents a defeat for the Republicans, but is higher than the $250,000 threshold originally demanded by Democrats, including Mr Obama. It is the first time in two decades that Republicans have approved a rise in income tax, since President George W H Bush famously broke his "Read my lips" campaign pledge.
Taxing the wealthy
The Republicans have agreed that tax rates on dividends and capital gains will be allowed to rise permanently for families earning more than $450,000, and for individuals making more than $400,000 a year.
The Republicans had opposed raising the levy on inheritances, known as the 'estate tax'. But under the new agreement, it will climb to 40 per cent. Democrats had argued for a 45 per cent tax on inheritances of more than $3.5m.
The Republicans gave in on spending cuts after resisting any delay in the package of reductions worth more than $100bn, known as the 'sequester'.