The International Monetary Fund says U.S. actions to avoid the fiscal cliff did not go far enough to address the country's long-term economic problems, including its deficit and overall debt. In a statement issued on January 2, IMF spokesman Gerry Rice said more remains to be done to put U.S. public finances back on a sustainable path without harming what it said was the still fragile recovery.
U.S. lawmakers, in a late night session on January 1 passed a measure to avert the so-called "fiscal cliff," with a plan President Barack Obama calls "one step" in a broader effort to strengthen the American economy. Flying back from his Hawaiian vacation, the chief executive said, "Today's agreement enshrines, I think, a principle into law that will remain in place as long as I am president: The deficit needs to be reduced in a way that's balanced," said Obama.
"Everyone pays their fair share. Everyone does their part. That's how our economy works best. That's how we grow." The president spoke shortly after the Republican-dominated House of Representatives approved the measure passed early in the day on January 1 by the Senate.
Some conservative House members tried to add more spending cuts to the plan, but did not have enough support among their fellow lawmakers to take such action. President Obama and congressional Republicans have sparred for more than a year over tax rates, the extent of government spending, chronic budget deficits and the country's mounting debt.
Congressional leaders described the fiscal cliff deal as imperfect, but in the best interest of the American people. The compromise delays mandated cuts to defense spending and domestic programs for two months, setting up a future battle between the parties. Some analysts have said that without a compromise, the $500 billion in austerity measures could eventually plunge the U.S. economy into another recession.
Even as U.S. leaders wrangled over the tax and spending issues, they soon face a decision on whether to increase the country's borrowing limit, which hit its current $16.4 trillion cap on Monday. Officials say the country will be able to pay its bills for another two months, but by then will need to increase the debt ceiling, an action likely to spark another extended debate over Washington's spending priorities.
President Obama said on January 1 he will not engage Congress in a debate about whether they should raise the debt ceiling to pay for the cost of the legislation they have already passed. "We can't not pay bills that we've already incurred," said Obama. "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 the fiscal cliff." Obama said he hopes lawmakers can work to solve the budget issues with "less drama" and "less brinksmanship" after a deal that required days of intense deadline negotiations.
Facts about the fiscal cliff deal
* Raises $600 billion over 10 years through higher taxes on wealthier Americans
* Delays by two months billions of dollars in mandatory defense and domestic spending cuts
* Extends farm bill provisions to prevent a spike in milk prices
* Blocks cuts to payments for doctors who treat elderly Americans
* Extends unemployment benefits to 2 million people for one year
* Cancels a $900 cost-of-living raise for members of Congress
* Extends child tax credits, and those for college tuition and renewable energy
Under the plan, taxes will increase for individuals making more than $400,000 a year and couples earning more than $450,000, the first U.S. income tax increase in 20 years. The package will also extend unemployment benefits for a year and boost taxes on large inheritances.