Republicans, Obama already looking to next budget fight

President Barack Obama and congressional Republicans yesterday looked ahead to 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 the president, 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 said, adding that the party would have the political leverage against Mr Obama.

“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 programmes like Medicare and Medicaid healthcare 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 said.

“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.”

President Obama urged “a little less drama” when Congress and the 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 on opening after the deal was done.

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 over $450,000 annually. Spending cuts of $109bn in military and domestic programmes were delayed 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 Mr Obama to sign into law. “We are ensuring that taxes aren’t increased on 99% of our fellow Americans,” said Republican representative David Dreier.

The vote underlined the precarious position of House speaker John Boehner, who will ask his Republicans to re-elect him as speaker today when a new Congress is sworn in.

Mr 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 the president to overhaul the US tax code and rein in health and retirement programmes that will balloon in coming decades as the population ages.

— Reuters