US heading over fiscal cliff, says Senate leader Harry Reid

Almost £370bn of tax rises and spending cuts will to come into force on 1 January if a deal is not agreed

Senate Majority Leader Harry Reid has warned that the United States looks to be headed over the “fiscal cliff” of tax hikes and spending cuts that will start next week if squabbling politicians do not reach a deal.

Reid, the top Democrat in Congress, criticized Republicans for refusing to go along with any tax increases as part of a budget remedy as he sketched out a pessimistic outlook.

"It looks like that is where we're headed," Reid said of the likelihood of the US economy going over the "fiscal cliff" - with tax increases on most working Americans and automatic spending cuts kicking in next month.

Reid made his comments in a Senate floor speech at the opening of a post-Christmas session, adding that time was running out ahead of a December 31 deadline to act to avert the "fiscal cliff."

Reid urged House of Representatives Speaker John Boehner, the top Republican in Congress, to bring his chamber back into session and to avoid the biggest impact of the "fiscal cliff" by passing a Democratic-backed bill extending low income tax rates for all Americans except those with net household incomes above $250,000 a year.

House Republicans are expected to hold a telephone conference call on the fiscal cliff on Thursday afternoon, a House Republican aide said, adding that a schedule for returning to Washington would be discussed.

Should Congress fail to act by December 31, tax rates for all Americans would snap sharply higher, back to pre-2001 levels, and two days later, $109 billion in automatic spending cuts would start to take effect. Together, the higher taxes and lower spending would suck about $600 billion (£370bn) out of the US economy, potentially causing a new recession in 2013.

On Wednesday, it was Boehner who urged the Democratic-controlled Senate to act first to avoid the fiscal cliff, offering to at least consider anything that the Senate produced.

Reid returned the volley on Thursday, saying that the Senate had already acted, and the Democrats' solution needs the consent of both Boehner and Senate Republican Leader Mitch McConnell.

Reid said Boehner "has just a few days left to change his mind" on the Senate bill. "I don't know time-wise how it can happen now."

AP

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