Reaching a last-minute deal to avoid the much-discussed 'fiscal cliff', the US Senate approved a bill with 89-8 majority in wee hours of this morning to avert automatic tax hikes and huge spending cuts.
The legislation, which aims to delay the automatic spending cuts by two months and save the middle-class from tax hikes, will now go to the House of Representatives for voting later on Tuesday.
The new bill is key to avert an estimated USD 600 billion worth government spending cuts and automatic tax hikes for rich and poor alike, with effect from January 1, 2013. Widely described as a 'fiscal cliff', such a scenario was feared by many as a possible threat for pushing the world's largest economy back into recession.
While the deadline has technically been missed with the law not getting amended by the midnight, the bill's early passage by the Congress and making it into a law can still neutralise any impact on the US economy.
Welcoming the Senate approval, President Barack Obama called for immediate passage of the bill by the House of Representatives as well, while standing above the party lines.
"While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and House should pass it without delay," Obama said.
The Senate approval came after hectic late-night negotiations between Republican and Democratic leaderships and the White House to arrive at a last-minute deal brokered by the US Vice President Joe Biden.
The agreement passed by the Senate protects 98 per cent of Americans and 97 per cent of small business owners from a middle class tax hike.
"This agreement will also grow the economy and shrink our deficits in a balanced way by investing in our middle class, and by asking the wealthy to pay a little more," Obama said.
It is only after House of Representatives passes the bill that it goes to the White House for the US President Barack Obama to sign it into a law. The House was expected to debate the bill beginning Tuesday afternoon.
The legislation, as passed by the Senate, would permanently extend the Bush-era income tax rates on individual income up to USD 400,000 and family income up to USD 450,000.
It also hikes the estate tax rate from 35 per cent to 40 per cent, and exempts inheritances below USD 5 million, among other provisions.
Since any or all of the current provisions could be amended or rejected, the final shape of the deal is still not certain. Congressional leaders and White House, however, expressed confidence that they can neutralise the fiscal cliff by making a new law before any adverse impact on the economy.
In all, it would have involved USD 600 billion in tax hikes and spending cuts in the New Year.
Obama said tonight's agreement asks millionaires and billionaires to begin to pay their fair share for the first time in twenty years.
"As promised, that increase will be immediate, and it will be permanent. There's more work to do to reduce our deficits, and I'm willing to do it.
"But tonight's agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans," he said.
Congressional Budget Office had predicted that fiscal cliff could dampen economic growth by 0.5 per cent and push the US economy towards a recession.