us avoids fiscal cliff with compromise deal

The US government has reached to a deal to help the country avoid the looming fiscal cliff that threatened to send it back into recession.

us avoids fiscal cliff with compromise deal


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.



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