Solving the United States national debt-ceiling problem is
the next major hurdle for a divided Congress to battle over
this year, and President Barack Obama appears in no mood to
give any ground to his Republican rivals.
The fiscal cliff deal, approved at the last minute before tax
hikes for all and compulsory spending cuts came in, just
postponed the harder decisions the politicians have yet to
agree on - spending cuts and the debt ceiling.
The US officially hit its current authorised debt ceiling of
$US16.4 trillion ($NZ19.8 trillion) on Monday, although
Treasury Secretary Timothy Geithner had informed Congress
previously he was able to avoid breaching the limit for a few
weeks through ''extraordinary measures''.
That news set up a renewal of the conflict from 2011 that
brought the US within days of default and led to the
first-ever downgrading of the federal Government's credit
rating. Congressional Republicans insist they will continue
to demand, as they did in 2011, that any increase in the debt
limit be tied to significant spending cuts. However,
President Obama said that this time, he would not negotiate
over the limit.
''I will not have another debate with this Congress over
whether or not they should pay the bills that they've
al-ready racked up through the laws that they have passed,''
Mr Obama said on New Year's Day.
Spending cuts and the debt ceiling need to be addressed by
the end of February, and Republicans are likely to demand
deep cuts, particularly to entitlement programmes such as
social security, in return for an increase in the legal cap
on Government borrowing.
Entitlement payments are expected to rise sharply in the
coming decades as the baby-boom generation retires and enters
old age, entailing more Government-funded medical care. The
Democrats prefer to reduce the Government's deficit through
Market reaction to the fiscal cliff deal was positive, global
markets rallying. In New York, the Dow Jones closed up 2.4%
and European shares were up about 2% for the day.
The deal resolved the most serious of the issues facing the
US including. -
• Making tax cuts that date back to George W. Bush's
presidency permanent for individuals earning less than
• Postponing $US65 billion of automatic spending cuts for two
• Keeping benefits for the long-term unemployed, worth $US26
billion, available for another year.
• Postponing for a year an $US11 billion cut in Medicare
But the deal also allowed some tax cuts to go ahead,
• The expiry of a payroll tax holiday, expected to raise
$US95 billion in additional annual revenue.
• Allowing the Bush-era income tax cuts for individuals to
come to an end, with the top rate increasing from 35% to 40%.
• Higher taxes on dividend income, capital gains and
inheritance for those same top earners.
• Phasing out certain income tax deductions for individuals
earning more than $US200,000.
According to latimes.com/business, every working person
earning up to $US113,700 in wages this year will shoulder an
instant tax increase of 2%. The tax holiday, which cut the
employee's share of the Social Security tax to 4.2% from 6.2%
of income up to the annual wage cap, was always designed as a
temporary stimulus measure. But few expected it would expire
at a single stroke - and without a countervailing
working-class tax credit to soften the blow.
US executives aligned with the ''Fix the Debt'' group sharply
criticised the fiscal cliff deal because it did not do enough
to stem the rise in the nation's debt.
They blasted the political log-jam that prevented the deal
being reached until January 1, leading to months of
uncertainty that some contended hurt the economy by causing
businesses and consumers to delay spending. They noted that a
similar period of anxiety lay ahead as Congress determined
whether to raise the country's debt limit.
US federal law requires Congress to authorise the Government
to borrow any money that is needed to pay for programmes
Congress has passed. The Constitution gives Congress the
power to control spending and borrowing. The debt limit or
debt ceiling was introduced in 1917 and was meant to give the
Treasury greater flexibility by not having to have Congress
approve every new issuance of debt every time the Government
needed to borrow to pay for things Congress had already voted