The lights of the U.S. Capitol remain lit into the night.
The lights of the U.S. Capitol remain lit into the night as the House, at left, continues to work on the "fiscal cliff" legislation proposed by the Senate, in Washington, on January 1, 2013 Photo by AP
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The U.S. Congress approved a rare tax increase on Tuesday that will hit the nation's wealthiest households in a bipartisan budget deal that stops the world's largest economy from falling into a deep fiscal crisis and recession.

By a vote of 257 to 167, the Republican-controlled House of Representatives approved a bill that fulfills President Barack Obama's re-election promise to raise taxes on top earners.

The Senate passed the measure earlier in a rare New Year's Day session and Obama is expected to sign it into law shortly.

The United States will no longer go over a "fiscal cliff" of tax hikes and spending cuts that had been due to come into force on Tuesday but other bruising budget battles lie ahead in the next two months.

It was a reversal for House Republicans, who were in disarray despite winning deep spending cuts in earlier budget fights. But they saw their leverage slip away this time when they were unable to unite behind any alternative to Obama's proposal.

House Speaker John Boehner and other Republican House leaders stayed silent during the debate on the House floor, an unusual move for a major vote.

The deal shatters two decades of Republican anti-tax orthodoxy by raising rates on the wealthiest even as it makes cuts for everybody else permanent.

Lawmakers had struggled to find a way to head off across-the-board tax hikes and spending cuts worth e600 billion that began to take effect at midnight on Jan. 1, a legacy of earlier failed budget deals that is known as the fiscal cliff.

Strictly speaking, the United States went over the cliff in the first minutes of the New Year because Congress failed to act on time. But the bill passed on Tuesday will be backdated.

While many Republicans were uneasy with the tax hikes and wanted more spending cuts, they seemed to realize that the fiscal cliff would begin to damage the economy once financial markets and federal government offices returned to work on Wednesday. Opinion polls show the public would blame Republicans if a deal were to fall apart.