WASHINGTON (Reuters) - 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 U.S. stocks soared at the opening after lawmakers
agreed to the deal.
The Dow Jones industrial average (.DJI) surged 262.45
points, or 2.00 percent, at 13,366.59. The Standard & Poor's 500
Index (.SPX) was up 29.79 points, or 2.09 percent, at 1,455.98. The
Nasdaq Composite Index (.IXIC) was up 77.45 points, or 2.57 percent, 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 $109 billion 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 $600
billion hole in the economy this year and threatened to send the country
back into recession.
RELUCTANT REPUBLICANS
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 percent 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 U.S. 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 $650 billion 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.
