US Congress passes 'fiscal cliff' measure
Source: Agencies |
January 3, 2013, Thursday
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Print Edition
Print Edition
A LAST-MINUTE deal will keep the United States from driving off the so-called "fiscal cliff," but higher taxes and continued political fighting in Washington threaten to shake the fragile economy well into 2013.
A bill passed by Congress late on Tuesday averts widespread tax increases and delays deep spending cuts that had threatened to return the country to recession. World stocks went up in response.
Many economists were disappointed that Congress and the White House couldn't reach agreement on a broader deal to significantly reduce the deficit over the next 10 years. That could have boosted business and consumer confidence and accelerated growth, they said.
"Nothing really has been fixed," said Joseph LaVorgna, an economist at Deutsche Bank. "There are much bigger philosophical issues that we aren't even addressing yet."
Lawmakers postponed tough decisions on government spending, giving themselves a reprieve from cuts that were due to start taking effect on January 1. That just sets the stage for more hard bargaining later. Spending cuts could hurt growth even more.
Another standoff is likely to arrive as early as February, when Congress will need to raise the US$16.4 trillion federal borrowing limit so the government can keep paying its bills.
House Republicans, who objected strongly to the latest fiscal deal before the chamber finally voted to approve it, probably won't agree to raise the debt limit without offsetting spending cuts that Democrats are sure to resist.
President Barack Obama warned Republicans on Tuesday that "if Congress refuses to give the United States government the ability to pay these bills on time, the consequences for the entire global economy would be catastrophic, far worse than the impact of a fiscal cliff."
Meanwhile, the economy doesn't have much growth to give. Mark Vitner, senior economist at Wells Fargo, predicts it will expand just 1.5 percent in 2013, down from a weak 2.2 percent in 2012. Unemployment stands at 7.7 percent.
Ben Schwartz, chief market strategist for Lightspeed Financial, said unemployment was still likely to edge up and retail sales growth was likely to be weaker than last year.
"Regardless of a deal getting done, people on Wall Street are not going to run around giving high fives" in celebration, Schwartz said. "The federal government is obviously dysfunctional, to say the least."
The months-long political standoff over fiscal policy has already taken its toll, adding uncertainty that has discouraged consumers from spending and businesses from hiring and investing.
The "fiscal cliff," with its January 1 deadline to reach a deal over taxes and spending, was created to force Democrats and Republicans to compromise, and it barely succeeded. Without a deal, more than US$500 billion in tax increases would hit the economy in 2013 alone, along with US$109 billion in cuts from military and domestic spending programs.
A bill passed by Congress late on Tuesday averts widespread tax increases and delays deep spending cuts that had threatened to return the country to recession. World stocks went up in response.
Many economists were disappointed that Congress and the White House couldn't reach agreement on a broader deal to significantly reduce the deficit over the next 10 years. That could have boosted business and consumer confidence and accelerated growth, they said.
"Nothing really has been fixed," said Joseph LaVorgna, an economist at Deutsche Bank. "There are much bigger philosophical issues that we aren't even addressing yet."
Lawmakers postponed tough decisions on government spending, giving themselves a reprieve from cuts that were due to start taking effect on January 1. That just sets the stage for more hard bargaining later. Spending cuts could hurt growth even more.
Another standoff is likely to arrive as early as February, when Congress will need to raise the US$16.4 trillion federal borrowing limit so the government can keep paying its bills.
House Republicans, who objected strongly to the latest fiscal deal before the chamber finally voted to approve it, probably won't agree to raise the debt limit without offsetting spending cuts that Democrats are sure to resist.
President Barack Obama warned Republicans on Tuesday that "if Congress refuses to give the United States government the ability to pay these bills on time, the consequences for the entire global economy would be catastrophic, far worse than the impact of a fiscal cliff."
Meanwhile, the economy doesn't have much growth to give. Mark Vitner, senior economist at Wells Fargo, predicts it will expand just 1.5 percent in 2013, down from a weak 2.2 percent in 2012. Unemployment stands at 7.7 percent.
Ben Schwartz, chief market strategist for Lightspeed Financial, said unemployment was still likely to edge up and retail sales growth was likely to be weaker than last year.
"Regardless of a deal getting done, people on Wall Street are not going to run around giving high fives" in celebration, Schwartz said. "The federal government is obviously dysfunctional, to say the least."
The months-long political standoff over fiscal policy has already taken its toll, adding uncertainty that has discouraged consumers from spending and businesses from hiring and investing.
The "fiscal cliff," with its January 1 deadline to reach a deal over taxes and spending, was created to force Democrats and Republicans to compromise, and it barely succeeded. Without a deal, more than US$500 billion in tax increases would hit the economy in 2013 alone, along with US$109 billion in cuts from military and domestic spending programs.
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