Fiscal Cliff update: House approves budget bill; Obama to sign

5PM House votes in favour of the budget bill despite strong Republican opposition. The vote was 257 to 157, with 151 Republicans voting against and 85 in favour. Also supporting the bill were 172 Democrats.

The bill now heads to the White House, where President Barack Obama is expected to sign it into law.

2.30PM UPDATE House Republican leaders moved in a night sitting toward an imminent vote on a Senate-passed agreement to avoid tax increases and spending cuts, possibly clearing the way for a final congressional vote on a deal that avoids the fiscal cliff.

The abrupt shift by Republicans came after leaders suggested they might try to add $US330 billion in spending cuts to the agreement amid opposition from conservatives.

The vote could be held as early as within the next hour starting around 9pm local time (3pm NZ time) after House Speaker John Boehner quelled a rebellion among conservatives who threatened to derail the measure.

The bill was brought to the House floor for final approval despite sharp criticism by House Republicans, who argued that it consisted almost entirely of tax increases and contained barely any spending cuts.

But Mr Boehner, who didn’t take a position on the bill, turned back conservative demands that the bill be amended to include more spending cuts.

8AM UPDATE The fiscal cliff deal is now in the hands of the Republican-controlled House of Representatives, which convenes today to consider a budget agreement that would boost US income tax rates for the first time in 20 years.

The increase is only for those with the highest incomes. The deal also maintains unemployment benefits and limits the spending cuts that were looming as part of the cliff.

The Senate passed the compromise by a vote of 89-8 in the early hours of New Year's Day, with three Democrats and five Republicans remaining opposed.

The long-sought compromise will raise taxes only on income over $US450,000 for couples - less than 1% of the population.

In a statement supporting the passing of the bill, President Barack Obama said, "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."

He said it would "grow the economy and shrink our deficits in a balanced way."

The bill maintains unemployment benefits to millions of Americans and extends a number of tax breaks for families of modest means.

Itl also delays for two months part of the $US110 billion in spending cuts that otherwise would have taken place in early January.

World markets and business have feared the effects of the fiscal cliff would snuff out the US economic recovery and lead to another recession.

The early morning vote occurred after the fiscal cliff technically occurred at midnight, though with financial markets closed on New Year's Day the impact of waiting one day was likely to be minimal.

The key elements of the deal were thrashed out during all-night negotiations between Senate Republican leader Mitch McConnell and Vice President Joe Biden.

Tax compromise package:
• Permanently raisies tax rates on income over $US400,000 for individuals and $US450,000 for couples filing jointly. The new rate is 39.6%, up from 35%.

• Raises taxes on capital gains and dividends for those households, from the current 15% to Clinton-era levels of roughly 20%.

• Limits the value of personal exemptions as well as the value of itemised deductions, two restrictions that would kick in at $US250,000 for individuals and $US300,000 for couples. Those limits disappeared in 2010.

• Sets the estate tax rate at 40% on estates over $US5 million, up from the 35% that applies now to those over $US5.12 million.

• Reinstates a two-percentage-point payroll-tax cut that was part of a deal President Barack Obama struck with Republicans late in 2010. This restores the employee portion of the Social Security tax to 6.2%.

The package will raise roughly $US600 billion in new revenue over 10 years, though this is less than 20% of the revenue that would have come in if all the tax breaks were to have expired on New Year's Eve.

Other details in the bill:
It continues an existing pay freeze for members of Congress for the current fiscal year but doesn't extend the pay freeze for federal government workers.

A measure preventing a sharp increase in the price of milk that was feared early in the new year and an extension of limited other agricultural programmes through September. The last five-year farm bill expired at the end of last September due to the inability of lawmakers to reach a deal on the sweeping legislation.

Left out of the bill were any disaster-relief funds to help assist the recovery effort from the devastation caused by Superstorm Sandy across the Eastern US in October. The Senate passed a bill last week providing $US60 billion in emergency relief but the House has yet to act to bring forward similar legislation.

Budget impact analysis
The deal won't do much to control the long-term budget concerns, which are driven largely by entitlement spending, especially on health care. These are left untouched in this agreement.

By waiting until the last minute, and by cutting a deal on a much smaller scale than either side once envisioned, some of the toughest questions will quickly return.

For example, the US Treasury will run out of extraordinary measures to deal with the government's borrowing limit in late February of early March. This means the Congress will need to approve an increase and set off another round of budget negotiations.