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From our Washington Correspondent:
Following a series of protracted negotiations the US government reached an agreement to prevent the implementation of a series of tax rises and spending cuts, known as the “fiscal cliff”.
Global markets responded positively to the news with the FTSE100 passing 6000 for the first time since July 2011 and Hong Kong’s Seng index opening 2.1% on Wednesday morning, as reported by ADVFN CEO Clem Chambers.
Passed by a 90 vote majority in the House of Representatives, the lower house of the US Congress, the agreement will increase tax on the top 2% of US earners and delays the need for agreement on spending cuts by a further two months.
If an agreement had not been reached payroll taxes for middle-class US citizens would have increased by an average of $2000, causing concern that reduced consumer spending would harm further economic recovery.
Commenting after the agreement was reached President Obama argued that it was “just one step in the broader effort to strengthen the economy”, whilst keeping a key presidential campaign promise to raise “taxes on the wealthiest” and prevent a “middle-class tax hike”.
Further measures in the agreement include the rising of inheritance taxes from 35% to 40% on the first $5m an individual leaves, or 10$m per couple, a one-year extension of unemployment benefit funding and a further five-year extension for tax-credits for middle and low income families.
The delay in future spending cut decisions means that crucial decisions have yet to be made, with further rounds of intense debate due in the coming months.
UPDATE – 14:50 GMT.
Shares have continued to rally globally following the announcement of the Fiscal Cliff deal.
During afternoon trading in London the FTSE reached 6038.51, up by 140.70 (2.39%) on it’s opening price. Germany’s Dax index also saw strong gains, up by 166.83 (2.19) to reach 7779.22. Whilst the Us Dow Jones index broke through 13000 to register 13107.14 soon after the markets opened, the 1.28% rise was more cautious than the European and Asian markets.
