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Deal to stave off 'fiscal cliff' hits snag in House


President Barack Obama hopes to agree the first major bi-partisan tax increases since 1990

President Barack Obama hopes to agree the first major bi-partisan tax increases since 1990

Win McNamee

President Barack Obama hopes to agree the first major bi-partisan tax increases since 1990

After stepping back from the edge of the so-called 'fiscal cliff', US politicians have begun moving back to the brink again in a New Year drama unlike any other in the history of Congress.

They had hoped to resolve any uncertainty before financial markets reopen today but ran into trouble as the Republican-controlled House of Representatives objected to urgent legislation approved by the Senate earlier.

The No 2 House Republican, Eric Cantor, emerged from a party meeting to say: "I do not support the Bill."

Politicians indicated that they want more spending cuts in the largely tax-focused legislation and want to send it back to the Senate. House Republican leaders continued to meet.

They have very little time. Rejection by the House would mean that any fiscal deal would have to start all over again when a new Congress, with dozens of new members, sits tomorrow.

The legislation at issue was only part of the grand deal President Barack Obama had hoped to make with politicians on addressing the country's chronic deficit spending. That means his administration and a bitterly partisan Congress face more showdowns on fiscal issues in the months ahead.

Economists, who had warned that the 'fiscal cliff' combination of higher taxes on almost all Americans and deep spending cuts taking effect at the start of the year would spin the country back into recession, warned that even a limited agreement to avoid it could still dent economic growth.

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The deal under consideration yesterday tackled one of the most sensitive issues: higher taxes. The measure would be the first significant bi-partisan tax increase since 1990. It would prevent taxes from going up on the poor and middle class but would raise rates on households earning more than $450,000 (£277,970) a year.

It would also put off for two months more than $100bn (£61.8bn) in automatic spending cuts which were set to hit the Pentagon and domestic programmes starting this week, and it would extend unemployment benefits for the long-term unemployed.

The measure cleared the Democrat-controlled Senate not long after midnight, hours after Vice President Joe Biden and Senate Republican Leader Mitch McConnell, veteran negotiators, sealed a deal.

The top Republican in Congress, House Speaker John Boehner, briefed his party members yesterday, while Biden met House Democrats. A Boehner aide said Republican leaders would not decide their course until a second meeting later in the day.

Mr Boehner pointedly refrained from endorsing the agreement, though he promised a vote on it or a Republican alternative right away.

The spending cuts will have to be addressed in the coming weeks and months, along with an increase in the government's borrowing limit as it seeks to pay its bills.

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.

"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," Mr Obama said in a statement.

"This agreement will 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."