WASHINGTON – Racing the clock, the White House reached a New Year’s Eve accord with Senate Republicans late Monday to neutralize across-the-board tax increases and spending cuts in government programs due to take effect at midnight, according to administration and Senate Democratic officials.
Under the deal, taxes would remain steady for the middle class and rise at incomes over $400,000 for individuals and $450,000 for couples – levels higher than President Barack Obama had campaigned for in his successful drive for a second term in office.
Spending cuts totaling $24 billion over two months aimed at the Pentagon and domestic programs would be deferred. That would allow the White House and lawmakers time to regroup before plunging very quickly into a new round of budget brinkmanship certain to revolve around Republican calls to rein in the cost of Medicare and other government benefit programs.
Officials also decided at the last minute to use the measure to prevent a $900 pay raise for lawmakers due to take effect this spring.
Democratic senators said late Monday night that they expected a vote on the measure later in the evening or early today. They spoke after a closed-door session with Vice President Joseph Biden, who brokered the deal with Senate Republican leader Mitch McConnell.
“The argument is that this is the best that can be done on a bipartisan basis,” said Sen. Dianne Feinstein, D-Calif., when asked about the case the vice president had delivered behind closed doors.
Passage would send the measure to the House, where Speaker John Boehner, R-Ohio, refrained from endorsing a package as yet unseen by his famously rebellious rank-and-file. He said the House would not vote on any Senate-passed measure “until House members – and the American people – have been able to review” it.
Numerous GOP officials said McConnell and his aides had kept the speaker’s office informed about the progress of the talks.
Without legislation, economists in and out of government warned of a possible recession if the economy were allowed to fall over a “fiscal cliff” of tax increases and spending cuts.
And while the deadline to act was technically midnight, Obama’s signature on legislation by the time a new Congress takes office at noon Thursday – the likely timetable – would eliminate or minimize any inconvenience for taxpayers.
As darkness fell on the last day of the year, Obama, Biden and their aides were at work in the White House, and lights burned in the House and Senate. Democrats complained that Obama had given away too much in agreeing to limit tax increases to incomes over $450,000, far above the $250,000 level he campaigned on. Yet some Republicans recoiled at the prospect of raising taxes at all.
A late dispute over the estate tax produced allegations of bad faith from all sides.
After hours of haggling, Biden headed for the Capitol to brief the Democratic rank and file.
The White House and Democrats initially declined the offer, preferring to prevent the cuts from kicking in at the Pentagon and domestic agencies alike. A two-month compromise resulted.
Officials in both parties said the agreement would prevent tax increases at incomes below $400,000 for individuals and $450,000 for couples.
At higher levels, the rate would rise to a maximum of 39.6 percent from the current 35 percent. Capital gains and dividends in excess of those amounts would be taxed at 20 percent, up from 15 percent.
The deal also would raise taxes on the portion of estates exceeding $5 million to 40 percent. At the insistence of Republicans, the $5 million threshold would rise each year with inflation.
In addition to preventing higher rates for most, the agreement would retain existing breaks for families with children, for low-earning taxpayers and for those with a child in college. Also, the two sides agreed to prevent the alternative minimum tax from expanding to affect an estimated 28 million households for the first time in 2013, with an average increase of more than $3,000.
The legislation leaves untouched a scheduled 2 percentage point increase in the payroll tax, ending a temporary reduction enacted two years ago to help