Senate leaders and the White House struck a last-minute deal to avert the feared fiscal cliff Monday night, with Vice President Joe Biden headed to the Capitol Hill to pitch the plan to fellow Democrats.
"Happy New Year," Biden, who became the Democratic point man in the talks, told reporters. "Did you think we would be here New Year's Eve?"
A senior Democratic aide told CNN that if caucus meetings went well, a Senate vote could come "within the hour." But the House of Representatives went home long before midnight, meaning nothing will get through Congress before the combination of tax increases and spending cuts lawmakers have been scrambling to head off starts to kick in, at least on paper.
A source familiar with the deal told CNN that the Senate proposal would put off the cuts for two months and keep the expiring Bush-era tax cuts for individuals earning less than $400,000 or couples earning less than $450,000. President Barack Obama has long demanded that the threshold be set at $250,000.
Tax rates on income above those levels would go back to the Clinton-era rate of 39.6%, up from the current 35%, and itemized deductions would be capped at $250,000 for individuals and $300,000 for couples. That would generate an estimated $600 billion in additional revenue over 10 years.
Taxes on inherited estates will go up to 40% from 35%, but the exemption will be indexed to rise with inflation -- a provision the source said was added at the insistence of moderate Democrats.
Unemployment insurance would be extended for a year for for 2 million people, and the alternative minimum tax -- a perennial issue -- would be permanently adjusted for inflation. Child care, tuition and research and development tax credits would be renewed. And the "Doc Fix" -- reimbursements for doctors who take Medicare patients -- will continue, but it won't be paid for out of the Obama administration's signature health care law.
Biden had been in negotiations with Senate Minority Leader Mitch McConnell, R-Kentucky, since Sunday afternoon. Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats, agreed to the plan in calls with President Barack Obama, a Democratic source said Monday night.
In the House, GOP sources said earlier Monday that there's little practical difference in settling the issue Monday night versus Tuesday. But if tax-averse House Republicans approve the bill on Tuesday -- when taxes have technically gone up -- they can argue they've voted for a tax cut to bring rates back down, even after just a few hours, GOP sources said. That could bring some more Republicans on board, one source said.
Economists warn the one-two punch of tax increases and spending cuts, known as "sequestration," could push the U.S. economy back into recession and drive unemployment back over 9% by the end of 2013. Obama had chided lawmakers for their last-minute scramble earlier Monday, hitting a nerve among several Republicans in the Senate.