US president Barack Obama said the deal, which sees tax increases for America’s wealthiest 2% and delays to spending cuts for two months, is “just one step in the broader effort to strengthen [the] economy”.
A $600bn package of tax increases and government spending cuts was due to come into force on 1 January 2013. The government was keen to reach a deal to avert these before the financial markets reopened today.
The agreed measures includes higher taxes for those earning more than $400,000 a year. Inheritance taxes will rise from 35% to 40% after the first $5m for an individual and $10m for a couple while capital taxes will also be increased.
Under the deal, which was a compromise for both the Democrats and the Republicans, over 98% of the US’ citizens and 97% of the country’s small businesses will not see their income tax rise.
Obama said: “A central promise of my campaign for president was to change the tax code that was too skewed towards the wealthy at the expense of working middle-class Americans.
“I will sign a law that raises taxes on the wealthiest 2 percent of Americans while preventing a middle-class tax hike that could have sent the economy back into recession and obviously had a severe impact on families all across America.”
The deadline for the other half of the fiscal cliff – the $109bn of spending cuts from domestic and military programmes – was pushed back for another two months. In addition, the government will have act by the middle of February to ensure the US does not breach its $16.4trn debt ceiling and trigger a default.
