Stock markets everywhere surged yesterday.

Despite the Xinhua News Agency’s prediction that the US will still fall into an abyss—

notwithstanding passage of the hard-fought bill that averts broad tax increases (a no-no to Republicans) and spending cuts (a no-no to Democrats), without which the tax hikes and government austerity would have hit America virtually right now—the world rejoices that the No. 1 economy is not going to plunge back into recession.

Xinhua is the state-run news and commentary service of the People’s Republic of China.
The US Congress ended a heated stalemate Tuesday (noon Wednesday in Manila) and passed the compromise law intended to prevent the US from falling over the so-called fiscal cliff. The compromise measure, which blocks most impending tax increases and postpones spending cuts mainly by raising taxes on wealthy Americans, leaves many issues unresolved. Which guarantees that budget conflicts between the Democrats who control the Senate and the Republicans who control the House will continue in the next US Congress.

President Barack Obama said he will sign the measure into law as soon as the final documents are ready and sent to him in Hawaii, where he has returned to resume his vacation that he interrupted to make his influence felt during the crucial hours of the New Year. The legislation represents the largest tax increase over the last two decades. It was passed easily in the Senate the other day and brought over to the House on Tuesday. After caustic negotiations with the Democrats, the Republican Speaker of the House John Boehner then presented the measure to his party mates. At one point the more zealously conservative Republicans were even thinking of scuttling the deal by ousting their Speaker.

The conservative Republicans in the House refused to join their party mates who accepted the bill because it contains no long-term reduction in government spending. The US budget deficit is what has put American in a deep hole.

The House voted (and ratified the Senate measure) 257-167, with 172 Democrats joining 85 Republicans in supporting passage. There were 151 Republican votes against the bill. It created a rarely seen split among the Republican leadership: Speaker Boehner supported it but the GOP Majority Leader in the House, Rep. Eric Cantor, voted against it. Rep. Paul Ryan, who had been the running mate of GOP candidate for president Mitt Romney against Barack Obama, also voted for the bill despite his being a avid foe of tax increases.

The Republican leadership was forced to support the deal—even if their party got very little in negotiations with the Democrats—because President Obama was sure to lay the blame on the GOP if the US economy did plunge into the abyss, as Xinhua gleefully predicts.

VP Joe Biden praised
President Barack Obama spoke to the nation at a press briefing soon after the House passed the bill. Vice-President Joe Biden (who as VP presides over the US Senate) stood beside him.

He praised Biden for having done a good job. And he said: “Thanks to the votes of Democrats and Republicans in Congress I will sign a law that raises taxes on the wealthiest 2 percent of Americans while preventing a middle-class tax hike that could have sent the economy back into recession and obviously [would have] had a severe impact on families all across America.” Mr. Obama also said he would like to take additional steps to reduce the nation’s deficit. But Republicans do not trust him on that pledge.

The enactment of this law once President Obama signs it will change the current US tax code. The GOP cannot now now claim to be the anti-tax party. The last time any Republicans in Congress ever supported a tax increase.

With this law, the tax rates that were set only as a temporary and desperate measure in the Bush presidency become permanent. If the compromise bill had not been passed, the tax rates would have reverted to pre-1991 levels and the government deficit would have become incredibly much worse—the fiscal cliff over which the United States would have fallen over.

Back to Square 1 two months from now
The law also defers some of America’s toughest spending problems. Foremost of this is the massive growth of health-care costs, made worse by the Obamacare law.

Two months from now, however, the $110 billion in spending cuts that the Republicans wanted to be included in the measure will become a problem—because some payments will come due. The American government’s borrowing limit will have to be increased, if the US can legally make loans to meet the payments. Increasing the borrowing limit can only be done by law.

So the same angry and bitter debates will surely happen again. It’s back to square!
Will the Democrats and the Republicans arrive at a compromise again?