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US fiscal cliff deal reached; Senate to vote today

Tuesday, 1 January 2013 - 10:41am IST | Place: Washington | Agency: Agencies

Agreement raises taxes on household incomes over $450,000; Congress miss own 'fiscal cliff' deadline of year end.

US president Barack Obama and Republicans sealed a budget deal late Monday night to avert the fiscal cliff that would prevent a middle-class tax hike from hitting 98% of all Americans, a senior White House official said. The deal also delays for two months part of the $109 billion in spending cuts.

Following an agreement negotiated by US vice-president Joe Biden and Senate minority leader Mitch McConnell, the Senate was moving towards a vote on the deal either late night or Tuesday noon. This is because Senate, wherein the Republicans enjoy a majority, had been adjourned till Tuesday noon. The fiscal cliff would have meant automatic tax increases for all Americans and deep cuts in military and discretionary spending.

Emerging from a party caucus meeting, Senate majority leader Harry Reid said the Senate will vote on a fiscal cliff deal tonight. Senators were waiting for the final score from the bi-partisan congressional budget office, which would prevent tax hikes on most of the Americans and put off for two months spending cuts scheduled by the sequester, he added.

However, the agreement came too late for Congress to meet its own deadline of New Year's Eve to pass laws halting $600 billion in tax hikes and spending cuts due to come into force on January 1. But with Tuesday a holiday, Congress still had time to draw up legislation, approve it and backdate it to avoid the harsh fiscal measures coming into force. That will need the backing of the House where many of the Republicans who control the chamber complain that president Barack Obama has shown little interest in cutting government spending to try to reduce the US budget deficit.

House Republicans are also likely to balk at planned tax hikes on household incomes over $450,000 a year that was part of the agreement struck between Vice President Joe Biden and Senate Republican minority leader Mitch McConnell. The House has convened a session for Tuesday at noon (1700 GMT).

The deal would make permanent the alternative minimum tax "patch" that was set to expire, protecting middle-income Americans from being taxed as if they were rich. Indiscriminate spending cuts for defense and non-defense spending were simply postponed for two months. As New Year's Day approached, members were thankful that financial markets were closed, giving them a second chance to return on Tuesday to try to blunt the worst effects of the fiscal mess.

There is no major difference whether a law is passed on Monday night, Tuesday or Wednesday. Legislation can be backdated to January 1, for instance, said law firm K&L Gates partner Mary Burke Baker, who spent decades at the Internal Revenue Service.

Republicans are pushing for savings in the Medicare and Social Security healthcare and retirement programs and threatening to block a increase in the debt limit — which caps how much debt the federal government can hold — in February unless they get their way.

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