Guardian

THE global economic meltdown, when it started in 2008, right in the heart of United States of America, was thought by many as a unique phenomenon of the country, by the country and for the country.

As weeks pass by, the world, through investments linkages- equities, stocks, treasuries, foreign exchanges, import and export, services, among other things, began to “sneeze from the cold.” Africa as a continent and Nigeria, in particular, were not spared of the woods.

The truth is that until now, majority of the countries in the world are still battling from the negative multiplier effect of the global meltdown, especially the underdeveloped and the developing ones.

The U.S. lawmakers, precisely, the Senate, just started the aversion of what could be called another brand of the global meltdown on Tuesday, with two hours into January 1.

The Senate voted 89-8 to approve a last-minute deal to avert income tax hikes on all, but the richest Americans and stall painful spending cuts as part of a hard-fought compromise to avoid the economically toxic “fiscal cliff.”

Technically speaking, the country had already tumbled for two hours over the cliff before the gavel came down on the vote at 2:07 a.m.

Still, the House of Representatives, would need to give its own nod, to settle the issue once for all time. The permutation presently is that with financial markets closed for New Year Day, quick action by lawmakers would likely limit the economic damage, since the House was not due to return to work to take up the measure until midday of Tuesday.

“The lopsided margin belied anxiety on both sides about the deal, which emerged from barely two days of talks between Vice President Joe Biden and Republican Senate Minority Leader, Mitch McConnell.

Just before the vote, McConnell repeatedly called the agreement “imperfect”, but said it beat allowing income tax rates to rise across the board.

“I know I can speak for my entire conference when I say we don’t think taxes should be going up on anyone, but we all knew that if we did nothing they’d be going up on everyone today,” he said. “We weren’t going to let that happen.”

“Our most important priority was to protect middle-class families. This legislation does that,” Democratic Senate Majority Leader Harry Reid said.

But Reid cautioned that “passing this agreement does not mean negotiations are halt. Far from it.”

Fiscal cliff means the combination of almost $600 billion of tax rises and government spending cuts, which would take effect from January 1, 2013, if Congress had failed to pass a new legislation, that would in turn supercede the proposition.

The nation’s Congress, mostly dominated by two parties- Democrats and Republicans, have been opposing each other, with differing ideologies and propositions.

If they had failed, taxes will significantly rise for most Americans, raising fears of a U.S. economic slowdown, which also mean that some benefits at present may be withdrawn.

By January 1, the sweeping tax cuts passed during the presidency of George W Bush will expire, eventually affecting people of all income levels, and many businesses.

Other tax cuts and benefits set to expire include a 2010 payroll tax cut, the expiration of which would prompt immediate wage-packet cuts; benefits for the long-term unemployed, which could mean more than two million Americans immediately stopped receiving payments; compensation for doctors treating patients on federal healthcare programmes; and inheritance taxes are also likely to be affected if no deal is reached.

In addition, spending cuts mandated by a law passed to break a previous fiscal impasse in Congress will come into force, affecting both military and domestic budgets.

The cuts are expected to affect federal government departments and the defence sector, as well as hitting unemployment insurance and veterans’ support, hence Congress must reach a deal within the remaining hours to avert steep spending cuts and tax rises due to take effect.

But Republican and Democratic leaders remain divided over core ideological issues about tax and government funding.

There is also debate over where to set the threshold for tax rises. Democrats say previously approved tax cuts should be extended for all Americans except the richest, those with annual earnings of more than $250,000 (£155,000), who should pay more.

Republicans want the tax threshold set higher, at around $400,000, and for revenue to be raised by economic growth and cuts in social security and mandatory spending programmes.

The country “just can’t afford a politically self-inflicted wound to our economy,” he said, warning that if they fail, “every American’s paycheck will get a lot smaller. Congress can prevent it from happening, if they act now,” he said.

If Reid and McConnell had not reach a deal, Obama had planned to seek a vote to prevent tax rises on incomes up to $250,000 and ensure unemployment insurance is continued.

Now, under the compromise arrangement, taxes would rise on income above $400,000 for individuals and $450,000 for households, while exemptions and deductions the wealthiest Americans use to reduce their tax bill would face new limits.

The accord would also raise the taxes paid on large inheritances from 35 per cent to 40 per cent for estates over $5 million.

It would also extend by one year unemployment benefits for some two million Americans. It would also prevent cuts in payments to doctors who treat Medicare patients and spare tens of millions of Americans who otherwise would have been hit with the Alternative Minimum Tax.

The middle class will still see its taxes go up: The final deal did not include an extension of the payroll tax holiday. And the overall package will deepen the deficit by hundreds of billions of dollars by extending the overwhelming majority of the Bush tax cuts. Many Democrats had opposed those measures in 2001 and 2003. Obama agreed to extend them in 2010.

Efforts to modify the first installment of $1.2 trillion in cuts to domestic and defense programmes over 10 years — the other portion of the “fiscal cliff,” known as sequestration — had proved a sticking point late in the game. Democrats had sought a year-long freeze but ultimately caved to Republican pressure and signed on to just a two-month delay while broader deficit-reduction talks continue.

But the House’s Republican leaders, including Speaker John Boehner, hinted in an unusual joint statement that they might amend anything that clears the Senate – a step that could kill the deal.

“Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members — and the American people — have been able to review the legislation,” they said.

Experts had warned that the fiscal cliff’s tax increases and spending cuts, taken together, could plunge the still-fragile economy into a new recession.

Experts also said that even if the House rejects the Senate bill, the nation shouldn’t plunge onto the shoals of recession immediately. There still might be time to engineer a soft landing. So long as lawmakers and the president appear to be working toward agreement, the tax hikes and spending cuts could mostly be held at bay for a few weeks. Then they could be repealed retroactively once a deal was reached.

If the legislation dies in the House, 2013 looks like a rocky year. Taxes would jump $2,400 on average for families with incomes of $50,000 to $75,000, according to a study by the nonpartisan Tax Policy Center. Because consumers would get less of their paychecks to spend, businesses and jobs would suffer.

At the same time, Americans would feel cuts in government services; some federal workers would be furloughed or laid off and companies would lose government business. The nation would lose up to 3.4 million jobs, the Congressional Budget Office predicts.

“The consequences of that would be felt by everybody,” Federal Reserve Bank Chairman, Ben Bernanke said.