Text size:

  • Small
  • Normal
  • Large
United States Vice President Joe Biden speaks to the media following a Democratic caucus meeting at the US Capitol in Washington, D.C., on New Year's Eve. Andrew Harrer / Bloomberg
Andrew Harrer
United States Vice President Joe Biden speaks to the media following a Democratic caucus meeting at the US Capitol in Washington, D.C., on New Year's Eve. Andrew Harrer / Bloomberg

US steps back from 'fiscal cliff', averting New Year tax hikes

In a dramatic session in the early hours of New Year's Day, senators moved to reduce the economic impact of the fiscal cliff.

The United States senate yesterday acted to pull the country back from the brink of the fiscal cliff, averting huge tax rises and spending cuts that some feared would prompt a new economic downturn.

In a dramatic session in the early hours of New Year's Day, senators voted 89 to 8 to raise taxes on high earners and delay for two months part of the US$110 billion (Dh404.04bn) in spending cuts that would otherwise have kicked in yesterday.

The breakthrough paves the way for helping to avoid the risk of serious economic slowdown or even a recession in the US, which observers warned was at stake without a deal. The long-awaited agreement came too late to meet congress's own deadline of the end of New Year's Eve for passing laws that avert the fiscal cliff. But with global markets closed yesterday the impact of the delay was muted.

To ensure its passage, the legislation will need agreement from the house of representatives, which could prove tricky as some conservative Republicans feel the deal leans too heavily towards tax increases rather than federal spending cuts. The house was due to meet at noon eastern standard time yesterday.

President Barack Obama urged the house to follow the senate's example. "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 said.

"There's more work to do to reduce our deficits, and I'm willing to do it. But tonight's agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans." Yesterday's deal would raise tax rates on individuals earning more than $400,000, or $450,000 for jointly filing couples.

It would also raise taxes on capital gains and dividends for those households to 20 per cent, up from 15 per cent. The value of personal exemptions and itemised deductions would also be limited under the compromise, while setting the estate tax rate at 40 per cent on estates over $5 million.

As expectations rose about a compromise in the offing, US markets rallied late on Monday. Investors have remained wary in recent weeks as the countdown ticked closer to the fiscal cliff deadline.

But failure to pass legislation in the coming days is likely to reignite market anxiety over the risk of a fresh recession in the US. Heading over the fiscal cliff could lead to an economic slowdown early in the year, according to the congressional budget office.

"Clearly, if there is no resolution in the US fiscal cliff, we expect weakness in developed markets and as usual that would have a knock-on effect here," said Julian Bruce, the Dubai-based head of institutional trading at EFG Hermes Holding.

Politicians still face a tricky task to tackle the budget deficit, which has raised debt levels to US$16.4 trillion. February is likely to be dominated by wrangling over raising the debt ceiling.

In trading yesterday, Saudi Arabia's Tadawul index gained 0.9 per cent to close at 6,860.01 on news of the agreement in the US Senate.

"The Saudi market now reacted positively to the news about the new agreement reached, even though it isn't final," Mohammed Al-Omran, financial analyst and president of the Gulf Center for Financial Consultancy in Riyadh told Bloomberg.

"We don't know the reaction of the House. If it rejects the agreement, capital markets will go back to square number one."

tarnold@thenational.ae

Back to the top

More articles


Editor's Picks

 The Greens, villas: Q1 no change. 3BR - Dh210-250,000. 4BR - Dh210-260,000. 5BR - Dh220-300,000. Q1 2013-Q1 2014 5% rise. Pawan Singh / The National

In pictures: Where Dubai rents have risen and fallen, Q1 2014

Find out how rental prices in the prime locations in Dubai have altered during the first three months of the year and the current rates you will pay according to data provided by Asteco.

 Above, the private pool of Ocean Heights' five-bedroom penthouse flat. Courtesy Christie’s International Real Estate

In pictures: Penthouse flat is height of Dubai luxury living

A five-bedroom penthouse in Ocean Heights in Dubai Marina is on sale for Dh25 million and comes with a private pool and an unparalleled view of Dubai.

 The cooling towers of the Temelin nuclear power plant near the Tyn nad Vltavou in Czech Republic. The country wants to continue expanding nuclear energy capacity despite cancelling a tender to build two new units. David W Cerny / Reuters

In pictures: Best business images for the week to April 17, 2014

Here are some of the best business images for the week to April 17, 2014.

 Three generations of the Hakimi family tend to their stall Crawford Market in Mumbai. Subhash Sharma for The National

In pictures: Shopper’s delight at Crawford Market in Mumbai

Crawford Market is an old British-style covered market dealing in just about every kind of fresh food and domestic animal imaginable. Later on renamed Mahatma Jotirao Phule, the market remains popular among locals and visitors by its old name, taken from Arthur Crawford who was the first municipal commissioner of the city.

 The Wind, Energy, Technology and Environment Exhibition takes place from April 14 to April 16. Above, the Dewa showroom during last year’s Wetex. Jaime Puebla / The National

April corporate and economic calendar for the UAE and overseas

From Cityscape to Wetex to stock-market holidays to nations reporting first-quarter GDP figures, here is our helpful calendar of April's business events in the UAE and internationally.

 Get the latest information on credit cards, bank accounts and loan products in the UAE. Mark Lennihan / AP Photo

Rates report: Latest on UAE loans, accounts and credit cards

Souqamal.com brings you the latest interest rates on banking products in the UAE.

Events

To add your event to The National listings, click here

Get the most from The National