The agreement came together after negotiators cleared two final hurdles involving the estate tax and automatic spending cuts set to hit the Pentagon and other federal agencies later this week. Republicans gave ground on the spending cuts, known as the sequester, by agreeing to a two-month delay paid for in part with fresh tax revenue, a condition they had resisted. White House officials yielded to GOP wishes on how to handle estate taxes, aides said.
The revelations about the pending deal came after Obama had said a pact was “within sight,” and House Republican leaders announced they would hold no votes Monday night, making it appear that that the nation would go over the fiscal cliff for at least a day. The two sides have been negotiating frantically to avert the automatic spending cuts and tax increases set to kick in on Tuesday, which many economists believe would push the nation back into a recession.
Around 9:15 p.m., Biden emerged from the office of Senate Majority Leader Harry M. Reid (D-Nev.) and walked with the Senate leader into a corridor, past a bank of television cameras broadcating the images live.
"Happy New Year!" the vice president said to awaiting reporters. "Don't you love spending New Year's Eve here?"
Biden then proceeded into a conference room for a meeting with his former Senate colleagues expected to last at least an hour.
Regardless of the emerging agreement, many Americans are all but certain to face a broad hike in taxes starting Tuesday because of the expiration of the payroll tax cut, which was enacted in 2011 as a temporary measure to boost economic growth. The increased payroll taxes, combined with hikes affecting the very wealthy, would effectively mark the end of a prolonged period of declining taxation that has become a defining characteristic of the American economy.
The pact came after a day of intensive negotiations and political battles between the two sides, with Obama urging lawmakers to “stop taxes going up for middle-class families, starting tomorrow,” and calling on them to remain focused on the needs of the American people rather than politics.
In what the White House billed as an event with middle-class Americans, Obama said the potential agreement would prevent federal income taxes from rising on middle-class families, extend tax credits for children and college tuition, provide tax breaks to clean-energy companies and extend unemployment insurance for 2 million Americans.
Other Democrats were upset about the administration’s decision to maintain a big exemption for inherited estates that allows those worth as much as $5 million — $10 million for couples — to go untaxed.
Although the White House won an agreement to raise the tax rates on larger estates from 35 percent to 40 percent, Republicans successfully insisted that the exemption should be adjusted annually for inflation, a provision that would increase the exemption amount to $7.5 million for individuals and $15 million for couples by 2020, said Rep. Chris Van Hollen (Md.), the ranking Democrat on the House Budget Committee.
He called the final agreement a “sweetheart giveaway to the wealthiest 7,200 estates in the country.”
Republicans, too, were anxious about accord, especially in the House, which two weeks ago rejected a proposal that would let taxes rise only on income over $1 million a year. GOP lawmakers — who have not voted for a broad tax increase since 1990 — were particularly incensed about the lack of new government spending cuts.
“The fact that the president won’t challenge his party on spending cuts is disgusting and the fact that we’re not where we need to be on revenues is disgusting,” said Rep. Steven C. LaTourette (Ohio), a Boehner ally. “It’s just disgusting.”
Under the agreement, the top income tax rate would rise from 35 percent to 39.6 percent for married couples earning more than $450,000 a year and single people earning more than $400,000 a year. Those households also would pay higher rates on investment profits, with rates on dividends and capital gains rising from 15 percent to 20 percent.
Combined with a 3.8 percent surcharge on investment income adopted as part of Obama’s health-care initiative — a tax that also takes effect in January — the top rate on investment income would rise to 23.8 percent for high-income households.
Nor would taxpayers earning less than $450,000 entirely escape. The deal would restore limits on personal exemptions and itemized deductions that existed during the Clinton administration, with those benefits phasing out for married couples earning more than $250,000 a year and single people earning more than $200,000.
That would keep Obama’s campaign pledge to raise taxes on the top 2 percent of earners, essentially households over $250,000. A Democrat familiar with the talks said the president hopes to gain additional revenue from those households by seeking to limit their tax breaks when the battle to reduce record deficits continues in the new year.
By extending lower tax rates for nearly all Americans rather than letting them reset at higher levels as scheduled, the deal amounts to a massive tax cut that would reduce revenue by about $3.7 trillion over the next decade.
In addition to permanently extending tax cuts enacted during the George W. Bush administration for 114 million households, the deal calls for a permanent fix for the alternative minimum tax, which would otherwise hit nearly 30 million taxpayers for the first time when they file their 2012 returns.
It would extend for five years tax credits for college tuition and the working poor, which were enacted as part of Obama’s 2009 economic stimulus package, benefiting 25 million low-income families.
Businesses would see a variety of popular tax breaks extended through 2013, including a credit for research that primarily benefits high-tech companies and an investment write-off that helps manufacturers.
The long-term unemployed could count on receiving emergency benefits for another year, at a cost of about $30 billion.
And doctors would be spared a 27 percent cut in Medicare reimbursements set to take effect in January — although the $30 billion cost of that extension would be covered by cutting other health-care programs.
The last last piece of the puzzle to fall into place was the sequester, which would be delayed until early March under an agreement to raise $12 billion in new tax revenue and $12 billion in fresh savings from the Pentagon and domestic programs.
Most of the deal had been locked down in a phone call between Biden and McConnell shortly before 1 a.m. Monday.
But at 6:30 a.m., McConnell’s phone rang again. A new problem had emerged: The White House was unhappy with a tentative agreement for handling the sequester.
Those cuts were adopted in the summer of 2011 after an epic battle over the federal borrowing limit. At the time, Boehner insisted on identifying spending cuts equal in size to the increase in the debt limit, which was lifted by $2.1 trillion. About half the savings came in the form of limits on agency budgets over the next 10 years. The rest — about $1.2 trillion over the next decade, including interest savings — would begin on Wednesday, striking every federal account evenly, across the board.
With negotiators focused on how to prevent taxes from rising, the sequester had been largely forgotten. Enter Defense Secretary Leon E. Panetta and other senior Pentagon officials, who mounted an intense campaign over the past two days to spare the military, warning lawmakers that 800,000 civilian jobs were at risk.
Suddenly, the sequester was back on the table. The White House at first sought a two-year delay, which would have added more than $200 billion to budget deficits. Republicans demanded new spending cuts and offered $120 billion in options.
As the talks continued, Obama appeared at the White House, demanding in a campaign-style event that any plan to pay for the sequester must be “balanced.”
“That means the revenues have to be part of the equation in turning off the sequester and eliminating these automatic spending cuts,” he said.
The announcement angered Republicans; a top aide to McConnell tweeted that Obama had just “moved the goalpost.”
A short while later, McConnell appeared on the Senate floor and pleaded for the deal to move forward.
“Let’s take what’s been agreed to and get moving. The president wants this, members of Congress want to protect taxpayers and we can get it done now,” McConnell said. “We must do this.”
Rosalind S. Helderman and Ed O’Keefe contributed to this report.
Original article on Washington Post