Bigger fights loom after fiscal deal
President Barack Obama
and congressional Republicans looked ahead on Wednesday toward the next round
of even bigger budget fights after reaching a hard-fought fiscal cliff deal
that narrowly averted potentially devastating tax hikes and spending cuts.The
agreement, approved late on Tuesday by the Republican-led House of
Representatives after a bitter political struggle, was a victory for Obama, who
had won re-election on a promise to address budget woes in part by raising taxes
on the wealthiest Americans.But it set up political showdowns over the next two
months on spending cuts and on raising the nation's limit on borrowing.
Republicans, angry the deal did little to curb the federal deficit, promised to
use the debt ceiling debate to win deep spending cuts next time."Our
opportunity here is on the debt ceiling," Republican Senator Pat Toomey of
Pennsylvania said on MSNBC, adding Republicans would have the political
leverage against Obama in that debate. "We Republicans need to be willing
to tolerate a temporary, partial government shutdown, which is what that could
mean."Republicans, who acknowledged they had lost the fiscal cliff fight
by agreeing to raise taxes on the wealthy without gaining much in return, vowed
the next deal would have to include significant cuts in government benefit
programs like Medicare and Medicaid health care for retirees and the poor that
were the biggest drivers of federal debt."This is going
to be much uglier to me than the tax issue ... this is going to be about
entitlement reform," Republican Senator Bob Corker of Tennessee said on
CNBC."This is the debate that's going to be far more serious. Hopefully,
now that we have this other piece behind us hopefully we'll deal in a real way
with the kinds of things our nation needs to face," he said.Obama urged
"a little less drama" when the Congress and White House next address
thorny fiscal issues like the government's rapidly mounting $16 trillion debt
load.The fiscal cliff showdown had worried businesses and financial markets,
and US stocks soared at the opening after
lawmakers agreed to the deal.The Dow Jones industrial average surged 262.45
points, or 2.00%, at 13 366.59. The Standard & Poor's 500
Index was up 29.79 points, or 2.09%, at 1 455.98. The Nasdaq Composite Index
was up 77.45 points, or 2.57%, at 3 096.97. The crisis ended when dozens of
Republicans in the House of Representatives buckled and backed a bill passed by
the Democratic-controlled Senate that hiked taxes on households earning more
than $450 000 annually. Spending cuts of $109bn in military and domestic
programs were delayed only for two months.Economists had warned the fiscal
cliff of across-the-board tax hikes and spending cuts would have punched a
$600bn hole in the economy this year and threatened to send the country back
into recession. House
Republicans had mounted a late effort to add hundreds of billions of dollars in
spending cuts to the package and spark a confrontation with the Senate,
but it failed.In the end, they reluctantly approved the Senate bill by a
bipartisan vote of 257 to 167 and sent it on to Obama to sign into law.
"We are ensuring that taxes aren't increased on 99% of our fellow
Americans," said Republican Representative David Dreier of California.The
vote underlined the precarious position of House Speaker John Boehner, who will
ask his Republicans to re-elect him as speaker on Thursday when a new Congress
is sworn in. Boehner backed the bill but most House Republicans, including his
top lieutenants, voted against it.The speaker had sought to negotiate a
"grand bargain" with Obama to overhaul the US tax code and rein in
health and retirement programs that will balloon in coming decades as the
population ages. But Boehner could not unite his members behind an alternative
to Obama's tax measures.Income tax rates will now rise on
individuals earning more than $400 000 and families earning more than $450 000
per year, and the amount of deductions they can take to lower their tax bill
will be limited. Low temporary rates that have been in place for the past
decade will be made permanent for less-affluent taxpayers, along with a range
of targeted tax breaks put in place to fight the 2009 economic downturn. However,
workers will see up to $2 000 more taken out of their paychecks annually with
the expiration of a temporary payroll tax cut.The non-partisan Congressional
Budget Office said the bill will increase budget deficits by nearly $4 trillion
over the coming 10 years, compared to the budget savings that would occur if
the extreme measures of the cliff were to kick in. But the measure will
actually save $650bn during that time period when measured against the tax and
spending policies that were in effect on Monday, according to the Committee for
a Responsible Federal Budget, an independent group that has pushed for more
aggressive deficit savings.
US averts fiscal cliff
A weary Congress sent President Barack Obama legislation
to avoid the economy-threatening fiscal cliff of middle class tax increases and
across-the-board spending cuts late on Tuesday night, hours before financial
markets reopen after the New Year's holiday.The bill's passage on a 257-167
vote in the House of Representatives
sealed a hard-won political triumph for the president less than two months
after he secured re-election while calling for higher taxes on the wealthy.The
economic as well as political stakes were considerable. Economists have warned
that without action by Congress, the tax increases and spending cuts that
technically took effect with the turn of the new year at midnight could cause
unemployment to spike and send the economy into recession.The extraordinary
late-night House vote took place less than 24 hours after the Senate passed the
measure in the pre-dawn hours on New Year's Day. The legislation cleared the
Senate hours after Vice-President Joe Biden and Senate Republican Leader Mitch
McConnell, veteran negotiators, sealed a deal.In addition to neutralising
middle class tax increases and spending cuts that technically took effect on
Monday at midnight, the legislation raises tax rates on incomes over $400
000 for individuals and $450 000 for couples. Remarkably, in a party that swore
off tax increases two decades ago, dozens of Republicans supported the bill in
both houses of Congress.Supporters of the bill in both parties expressed regret
that the bill was narrowly drawn, and fell far short of a sweeping plan that
combined tax changes and spending cuts to reduce federal deficits. That proved
to be a step too far in the two months since Obama called congressional leaders
to the White House for a post-election stab at compromise.Majority Republicans
did their best to minimise the bill's tax increases, just as they abandoned
their demand from earlier in the day to add spending cuts to the package "By
making Republican tax cuts permanent, we are one step closer to comprehensive
tax reform that will help strengthen our economy and create more and higher pay
cheques for American workers," said Rep Dave Camp of Michigan, chairperson
of the tax-writing House Ways and Means Committee.He urged a vote for passage
to "get us one step closer to tax reform in 2013" as well as attempts
to control spending.House Democratic leader Nancy Pelosi also said the
legislation included "permanent tax relief for the middle class", and
she summoned lawmakers to provide bipartisan support as the Senate did.The bill
would prevent an expiration of extended unemployment benefits for an estimated
two million jobless, renew tax breaks for businesses and renewable energy purposes,
block a 27% cut in fees for doctors who treat elderly Medicare patients, stop a
$900 pay increase for lawmakers from taking effect in March and head off a threatened
spike in milk prices.The bill would also raise the top tax rate on large
estates to 40% from 35%, and taxes on capital gains and dividends over $400 000
for individuals and $450 000 for couples would be taxed at 20%, up from 15%.It
would stop $24bn in spending cuts set to take effect over the next two months,
although only about half of that total would be offset with spending reductions
elsewhere in the budget.Even with enactment of the legislation, taxes are on
the rise for millions.A 2 percentage point temporary cut in the Social Security
payroll tax, originally enacted two years ago to stimulate the economy, expired
with the end of 2012. Neither Obama nor Republicans made a significant effort
to extend it.The fiscal cliff measure had cleared the Senate on a lopsided
pre-dawn New Year's vote of 89-8, and House Republicans spent much of the day
struggling to escape a political corner they found themselves in."I
personally hate it," Rep John Campbell of California said of the measure,
giving voice to the concern of many Republicans that it did little or nothing
to cut spending.Majority Leader Eric Cantor, the No 2 House Republican, told
reporters at one point: "I do not support the bill. We are looking,
though, for the best path forward."Within hours, Republicans abandoned
demands to add spending cuts to the bill and agreed to a simple yes-or-no vote
on the Senate-passed bill.They feared that otherwise the Senate would refuse to
consider any alterations, sending the bill into limbo and saddling Republicans
with the blame for a whopping middle class tax increase. One Senate Democratic
leadership aide said majority leader Harry Reid would "absolutely not take
up the bill" if the House changed it. The aide spoke on condition of
anonymity, citing a requirement to keep internal deliberations private.If the
House failed to pass the Senate bill it would mean that any fiscal deal would
have to start all over when a new Congress, with dozens of new members, is
seated Thursday. And any change in the legislation would require the Senate to
re-pass the measure before it could go to Obama for his signature.Despite
Cantor's remarks, Speaker John Boehner took no public position on the bill as
he sought to negotiate a conclusion to the final crisis of a two-year term full
of them.House Democrats met privately with Biden for their review of the
measure and the party's leader, Pelosi, said afterward that
Boehner should permit a vote.The non-partisan Congressional Budget Office said
the measure would add nearly $4 trillion over a decade to federal deficits, a
calculation that assumed taxes would otherwise have risen on taxpayers at all
income levels. There was little or no evident concern among Republicans on that
point, presumably because of their belief that tax cuts pay for themselves by
expanding economic growth and do not cause deficits to rise.The relative
paucity of spending cuts was a sticking point with many House Republicans.
Among other items, the extension of unemployment benefits costs $30bn, and is
not offset by savings elsewhere.For all the struggle involved in the
legislation, even its passage would merely clear the way for another round of
controversy almost as soon as the new Congress convenes.With the Treasury
expected to need an expansion in borrowing authority by early spring, and
funding authority for most government programs set to expire in late March,
Republicans have made it clear they intend to use those events as leverage with
the administration to win savings from the Medicare health care programme for
the elderly and other government benefit programmes.McConnell said as much
moments before the 02:00 Tuesday vote in the Senate - two hours after the
advertised "cliff" deadline."We've taken care of the revenue
side of this debate. Now it's time to get serious about reducing Washington's out-of-control
spending," he said. "That's a debate the American people want. It's
the debate we'll have next. And it's a debate Republicans are ready for."Obama,
who had campaigned for re-election on the promise of protecting households
making under $250 000 a year from a tax
increase, praised the agreement after the Senate's vote. Some liberal Democrats
were disappointed that the White House did not stick to a harder line in
negotiations, considering that Obama nlonger faces re-election."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," Obama said in a statement. "This agreement will also grow the
economy and shrink our deficits in a balanced way - by investing in our middle
class, and by asking the wealthy to pay a little more."The fiscal cliff
came about because tax rate cuts enacted in 2001 and 2003 during president
George W Bush's administration were set to expire at the end of the year.The
threatened across-the-board reductions in government spending, which would
slice money out of everything from social programmes to the military, were put
in place last year as an incentive to both parties to find ways to cut
spending. That solution grew out of the two parties' inability in 2011 to agree
to a grand bargain that would have taken a big bite out of the deficit which
has averaged about $1 trillion a year.If Obama and Congress failed to act,
about $536bn in tax increases touching nearly all American workers and about
$110bn in spending cuts, about 8% of the annual budgets for most federal
departments, were scheduled to start going into effect beginning in January.
Digital sales break £1bn barrier
Greek manufacturing
activity shrank for the 40th month running in December, hurt by weak domestic
demand and slumping export orders, leading firms to shed yet more jobs, a survey showed on Wednesday.Markit's
purchasing managers' index (PMI) for Greek manufacturing, which accounts for
roughly 15% of the economy, fell to 41.4 points in December from 41.8 in November. The index has now held below the 50 mark dividing growth from
contraction ever since September 2009, just before the country's massive debt
problems came to light, triggering the crisis that has plagued Greece.December's
decline in manufacturing output was the steepest in four months, bringing the
average for the fourth quarter to 41.4, down from an average reading of 42.0 in the third quarter.In November, Greece adopted a new round of austerity
measures to qualify for its next batch of EU/IMF bailout payments, expected to
keep its economy in recession for the sixth straight year in 2013.The
government expects gross domestic product (GDP) to contract by 4.5% next year
from 6.5% in 2012."December data showed no sign of the downturn in Greece's manufacturing
sector easing," said Markit senior economist Phil Smith."Of
particular concern was a faster contraction in new export orders, a trend which
has deteriorated considerably since the start of the year," he said.Greek
manufacturers saw a near-record drop in new orders from abroad in December,
exceeded only by heavier falls in November 2008 and January 2009.Weak sales led
manufacturers to shed staff again in December, weighing on the country's
record-high unemployment rate of 26%. Almost
24% of surveyed firms reported a reduction in payroll numbers since November. Despite
falling demand, input price inflation continued to rise in December on the back
of higher raw material prices. Competitive pressures led firms to cut output
prices to secure new business.
Singapore growth quells recession fears
Singapore's economy
grew in the fourth quarter, avoiding a technical recession despite
disappointing growth figures for 2012, government data showed on Wednesday. Gross
domestic product (GDP) rose 1.1% year-on-year in the three months to December
from zero growth in the previous quarter, the Ministry of Trade and Industry
said .On a quarter-on-quarter basis, the trade-dependent economy expanded by a
seasonally adjusted annualised 1.8%, reversing a revised 6.3% contraction in
the third quarter. The figures are based on estimates. Analysts feared the
economy had likely slipped into a technical recession after two successive
quarters of contraction. Prime Minister Lee Hsien Loong said in a speech on 1 January 2013 that GDP rose 1.2% for the full year. This was below the government's
target for the economy to expand 1.5-2.5%"Overall growth of just over 1.0%
is low by historical standards but it's still growth," said CIMB Research economist Song Seng Wun.The
manufacturing sector shrank by an annualised 10.8% quarter-on-quarter as the
European debt crisis and the sluggish US economy weakened global demand.
Manufacturing contracted by 0.2% in 2012.Construction also contracted 8.9%
quarter-on-quarter but grew 8.8% on year. The services sector expanded 1.2%
overall in 2012.Premier Lee said GDP was expected to grow 1.0-3.0% in 2013 due
to expected continued weakness in global demand.
India aims to stop welfare fraud
India will pay
billions of dollars in social welfare money directly to its poor, under a new
program that aims to cut out the middlemen blamed for the massive fraud that
plagues the system.Previously officials
only handed out cash to the poor after taking a cut - if they didn't keep all
of it for themselves and were known to enrol fake recipients or register unqualified
people. The program inaugurated on Tuesday would see welfare money directly deposited into recipients'
bank accounts and require them to prove their identity with biometric data,
such as fingerprints or retina scans.Finance Minister P. Chidambaram has
described the venture as "nothing less than magical," but critics
accuse the government of hastily pushing through a complex program in a country
where millions don't have access to electricity or paved roads, let alone
neighbourhood banks.The program is loosely based on Brazil's widely praised
Bolsa Familia program, which has helped lift more than 19m people out of
poverty since 2003. It will begin in 20 of the country's 640 districts on
Tuesday, affecting more than 200 000 recipients, and will be progressively
rolled out in other areas in the coming months, Chidambaram said
Monday. The country has 440m people living below the poverty line. "In a huge new experiment like this you
should expect some glitches. There may be a problem here and there, but these
will be overcome by our people," Chidambaram said.He appealed for patience
with the program, which he called "a game changer for governance."The
opposition Bharatiya Janata Party has accused the ruling Congress party of
using the program to gain political mileage ahead of elections expected in
2014.As a first step, the government has said it plans to begin directly
transferring money it would spend on programs such as scholarships and
pensions.Eventually the transfers are expected to help fix much of the rest of
India's welfare spending, though Chidambaram said the government's massive
food, kerosene and fertilizer distribution networks - which are blamed for much
of the corruption and lost money would be exempt.The program will eliminate
middlemen and transfer cash directly into bank accounts using data from
Aadhar, a government project working to give every Indian identification
numbers linked to fingerprints and retina scans. Currently hundreds of millions
of Indians have no identity documents.On Monday, 208 activists and scholars
published an open letter expressing concern that the government was forcing the
poor to enroll in Aadhar to get welfare benefits without putting safeguards in
place to protect their privacy. They also expressed fears that the government
planned to eventually replace the food distribution system for the poor, the
largest program of its kind in the world."Essential services are not a
suitable field of experimentation for a highly centralized and uncertain
technology," they wrote. Others said the government was trying to do too
much too soon."A very important concern is if we are ready for this sort
of thing. The banking infrastructure is very poor, people are far from these
banks, when they exist they are overcrowded. Sometimes people have to walk for
a day to get to the bank," says Reetika Khera, a development economist
with the New Delhi-based Institute for Economic Growth.Mihir Shah, a member of India's Planning Commission
accepts that the government's timeline is "unrealistic," but said
many critics had confused the lack of readiness with flaws in the plan
itself."My question to them is, is it better than what is there today?
That is the only way we can judge policy. I don't think there's a perfect
solution to any of mankind's problems," he said.Shah said a lot more work
needed to be done before cash transfers could become a reality across the country.
The identification drive needed to reach the vast majority of India's poor, and villages
needed banking infrastructure and Internet connectivity.
