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'Fiscal cliff' deal: After rush of relief, debt ceiling clash already looms

The 'fiscal cliff' deal passed the House after Republicans broke ranks over taxes. But spending cuts loom large in the next clash, over raising the debt ceiling, which Obama says is nonnegotiable.

By Staff writer / January 2, 2013

President Obama and Vice President Joe Biden make a statement regarding the passage of the fiscal cliff bill at the White House in Washington on Jan. 1.

Charles Dharapak/AP

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WASHINGTON

Just 10 hours before the New York Stock Exchange opened on Wednesday, the GOP-controlled House passed the Senate's "fiscal cliff" bill, 257 to 167, marking the first time that Republicans have, effectively, voted to raise income taxes in 20 years.

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Markets from Tokyo to Wall Street surged at the news that Congress had, at last, resolved the fiscal cliff, some $600 billion in tax hikes and spending cuts that threatened to drive the US economy back into recession.

The vote marked a clear victory for the White House on what had been a rock-solid GOP principle: no tax increases. President Obama made that point publicly several times in the midst of tough weekend negotiations, riling GOP leaders.

But the victory could be shortlived. Sharp divisions persist over how to deal with the nation’s $16 trillion national debt and soaring deficits, which Congress and the White House must face as early as February when they reengage over raising the debt ceiling.

Moreover, the fiscal cliff deal was worked out over the strong objections of conservatives on the right of the Republican Party and liberals on the left of the Democratic Party, not fully reflected in the final vote.

The bill, which passed the House mainly with Democratic votes and over the objections of 151 Republicans, extends the Bush-era tax cuts for most taxpayers, but set $450,000 as a cut-off point for higher tax rates on earned and investment income for the richest Americans.

It also delayed implementation of the sequester – $110 billion in automatic spending cuts set to begin Jan. 2 – a key GOP demand in exchange for agreeing to increase the debt limit up to $16.4 trillion in August 2011.

Now, Congress faces another standoff with the White House on taxes, spending, and entitlement reform as early as February, when lawmakers take up a new White House request to raise the debt limit.

In a statement after the fiscal cliff vote on Tuesday, Mr. Obama said he will refuse to engage the Congress over this issue, period.

“While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed,” he said.

“Let me repeat: We can't not pay bills that we've already incurred.  If Congress refuses to give the United States government the ability to pay these bills on time, the consequences for the entire global economy would be catastrophic – far worse than the impact of a fiscal cliff,” he added.

In fact, the national spending ran up against the debt ceiling on Dec. 31, but the Treasury has emergency measures to delay an actual breach for several weeks.

House Republicans are already shifting their focus from no tax hikes to spending cuts as their main concern.

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