Battlelines drawn as fiscal cliff avoided

Barack Obama says agreement by Congress to raise taxes on the wealthy will avert tax hikes on the middle class and government spending cuts.

AMERICA'S not going over the fiscal cliff, as the House of Representatives passed the last-minute deal to pull the nation away from the brink of economic chaos, 257-167.

The legislation will postpone the automatic spending cuts for two months. Individuals making more than $400,000 - $450,000 for families - would pay a top income tax rate of 39.6 percent, up from the current 35 percent. Others would pay at 2012 rates.

But the higher taxes and brinksmanship in Washington are likely to sap strength from the fragile economy well into 2013.

A 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 squabbling seems sure to persist after lawmakers postponed tough decisions on government spending, giving themselves a reprieve from cuts that were scheduled to begin yesterday. That just sets the stage for more hard-bargaining later. Spending cuts, when they come, could crimp growth even more.

President Barack Obama and Vice President Joe Biden make a statement regarding the passage of the bill to avoid the fiscal cliff in the press briefing room at the White House. Picture: AP/Charles Dharapak

President Barack Obama, who is expected to emergency legislation into law tomorrow, told Republicans that when it comes to spending cuts, the US must find a fair way to spread its economic burden across the economy.

"We can't cut our way to prosperity," President Obama said speaking in the White House press briefing room after the historic vote which ended days of tense negotiations.

"The one thing that I think hopefully in the New Year we'll focus on is seeing if we can put a package like this together with a little bit less drama, a little bit less brinksmanship, not scare the heck out of folks quite as much," he said.

Obama also warned that he would not bargain with Republicans in Congress or offer spending cuts in return for lifting the government's borrowing limit, known as the debt ceiling, in the coming months.

A day late and trillions of dollars short, Congress passed a hard-won deal to ease large portions of the fiscal cliff

"While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they've already racked up through the laws that they passed," the president said.

"Let me repeat. We can't not pay bills that we've already incurred. 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."

Reluctant House Republicans had been concerned today's bill had too few spending cuts and not enough meaningful debt reduction, had threatened to stymie the plan. Their fury was fueled further by a new report from the nonpartisan Congressional Budget Office that the package would add $3.97 trillion to deficits over the next decade.

But they also came to realize that scuttling the package could instantly put the nation's slowly improving economy in jeopardy. Tax rates had already gone up, and automatic spending cuts were scheduled to kick in Wednesday.

The US House of Representatives has voted to avoid the dreaded fiscal cliff.

In private meetings, Republicans expressed concern that once domestic financial markets re-open after the New Year's Day holiday, reaction to legislative gridlock could be severe.

It's a risk, said Representative John Fleming, "we all recognize.''

As a result, the debate became a virtual celebration of bipartisan agreement. "After more than a decade of criticizing these tax cuts, Democrats are finally joining Republicans in making these tax cuts permanent,'' said House Ways and Means Committee Chairman Dave Camp, . Pelosi lauded the bill as a "very, very strong first step as we go into the new year.''

The new legsilation also ties the alternative minimum tax to inflation, a relief for an estimated 30 million taxpayers who could have been hit with higher bills. Other measures include an extension of jobless benefits for the long-term unemployed and avoiding a huge cut in Medicare payments to doctors for a year.

Speaker of the House John Boehner, right, and House Majority Leader Eric Cantor, left, walk to a second Republican conference meeting to discuss the "fiscal cliff" bill passed by the Senate.

The vote in the House came after a day of furious closed-door lobbying-and arm-twisting. Vice President Joe Biden met for two hours with House Democrats. At the same time, Republicans met privately twice, for a total of nearly three hours. They heard opposition from Majority Leader Eric Cantor, who has a strong following among conservatives.

"There was a lot of discontent in that room,'' said Representative Steven LaTourette.

The congressional turmoil was no surprise. Republicans have long been unhappy with Democrats' reluctance to agree to big spending cuts, and were not pleased the latest deal delayed the automatic cuts.

"This does nothing about getting the $16.4 trillion debt under control, said Republican Steve Chabot from Ohio.

Late on New Year's Day, Speaker of the House John Boehner, left, and House Ways and Means Committee Chairman Dave Camp, confer as they leave a closed-door meeting of House Republicans.

Republicans made a last-ditch effort to pass more spending cuts, offering to consider the same package of $328 billion in cuts that passed on a party-line vote December 20, but could not muster enough support today. Many Republicans worried that attaching the measure would never make it through the Senate, putting the entire fiscal cliff deal at risk.

"We don't want to do anything in the House that would create a poison pill for the Senate,'' said Raul Labrador.

Few lawmakers in either party seemed happy with the plan, as the unease crossed party and ideological lines.

"This punts the problem,'' said Rep. Raul Grijalva, D-Ariz. "It just sets us up for more fights.''

Representative Joseph Crowley, right, accompanied by House Minority Leader Nancy Pelosi, center, and House Minority Whip Steny Hoyer, left, gestures during a news conference on Capitol Hill in Washington.

House Speaker John Boehner arrives on Capitol Hill in Washington on New Year's Day. Picture: J. Scott Applewhite

House Majority Leader Eric Cantor walks to a closed-door Republican caucus meeting on January 1. Picture: J. Scott Applewhite

Republican Senators Mitch McConnell and Pat Roberts (second from right), leave the Senate chamber to meet with fellow Republicans in a closed-door session as  "fiscal cliff" negotiations continue. Picture: J. Scott Applewhite

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