The Senate passed an agreement early Tuesday to solve the nation's threatening fiscal crisis, a last minute plan to avert sweeping tax increases for most Americans and postponing cuts to government spending that economists say could have triggered a recession.
The deal was worked out late Monday between the White House and Senate leaders. Lawmakers missed a critical New Year's Eve deadline Monday as they scrambled to cobble together a last-minute compromise between Democrats and Republicans on a marathon day of intense negotiations on Capitol Hill.
"This shouldn't be the model for how to do things around here," Senate Minority Leader Mitch McConnell, R-Ky. told his colleagues. "But I think we can say we've done some good for the country."
Approval of the deal was not certain.
The Democratic-controlled Senate overwhelmingly passed the 157-page bill, 89 to 8, just after 2 a.m. Tuesday, but the Republican-run House of Representatives still needs to vote when it returns for its first New Year's Day session in decades. House Speaker John Boehner, R-Ohio, said in a statement that the House would vote on the bill, but he declined to comment on its merits.
In a statement issued at 2:30 a.m., President Obama applauded the bipartisan support for legislation that "protects 98 percent of Americans and 97 percent of small business owners from a middle class tax hike."
"While neither Democrats nor Republicans got everything they wanted this agreement is the right thing to do for our country and the House should pass it without delay," Obama said.
The scaled-back package would extend permanently most the Bush-era tax cuts, while allowing them to expire – and taxes to increase – on higher incomes, individuals who make $400,000 and families who make $450,000. Individuals earning more than $250,000 and couples earning more than $300,000 would still be taxed higher because some of the value of their exemptions and itemized deductions would be phased out.
Paychecks, however, would shrink for every working American as a temporary cut in the payroll tax, enacted in 2011 to boost the economy, would end.
Talks over the final piece of the deal – $109 billion in spending cuts – dragged into the final hours of the year with the White House lobbying fellow Democrats to agree to a two-month delay.
The spending cuts would have slashed defense and domestic spending starting Wednesday, likely leading to layoffs and less services including fewer FBI agents, less housing assistance for low-income families and a delay in new equipment for the military.
With labor unions and liberal groups lobbying against the deal late Monday, Vice President Joe Biden rushed to Capitol Hill to meet with Senate Democrats to press for approval.
After the closed door meeting, Sen. Barbara Boxer, D-Calif., said she anticipated that just a handful of Senate Democrats would vote against the bill. "They're concerned that it's not a big enough deal, in other words, some are going to vote for it but they wanted a grand bargain," she said. "He (Biden) told us about the deal, he was very clear, he answered all our questions. He basically feels we can stand proud and tall that a lot of our values were preserved."
Negotiations over the so-called fiscal cliff marked one of the final acts for the 112th Congress – which has the distinction of passing fewer bills into law than any Congress in decades – before new members are sworn in Thursday.
The agreement would also:
– Extend unemployment benefits for 2 million Americans.
– Prevent about 30 million Americans from having to pay the alternative minimum tax.
– Keep Medicare payments to doctors at the current rate.
– Extend of tax credits for children and college tuition.
– Provide tax breaks to clean-energy companies.
– Raise the estate tax, but significantly less than Democrats had wanted. The value of estates over $5 million would be taxed at 40 percent, up from 35 percent.
– Taxes on capital gains and dividends would remain the same, 15 percent, for most Americans, but they would climb to 20 percent for top earners.
The bargain includes significant concessions by Democrats and Republicans, though perhaps more for the GOP, which had been against any tax increase. The compromise's future remained in doubt with both members of both parties publicly criticizing the deal.
Sen. Tom Harkin, D-Iowa, said he was disappointed that Democrats were abandoning their promise to extend only those Bush-era tax cuts on individual income below $200,000 and family income below $250,000. Republicans had been pushing to extend all of the tax cuts.
"The direction they're headed is just absolutely the wrong direction for our country," he said. "As I see this thing developing – quite frankly, as I've said before – no deal is better than a bad deal, and this looks like a very bad deal, the way this is shaping up."
Progressive groups, including the AFL-CIO and MoveOn.org, lobbied Democrats to vote against the compromise.
"The public is paying attention, and we urge all Democrats to stand on principle at this moment," the Progressive Change Campaign Committee wrote in a statement. "The current deal violates progressive principles. It should be opposed."
But Sen. Rand Paul, R-Ky., urged Democrats and the White House to stop picking on wealthy earners and implored his congressional colleagues not to vote for a measure that raises taxes, though a failure to act would ensure broad tax increases.
"The Republican Party should have no fingerprints on this and in no way support anything that raises taxes because it's bad economic policy," Paul said.
At a campaign-style event at the Old Executive Office Building across the street from the White House, Obama urged Congress to pass a bill as soon as possible to protect middle-class taxpayers.
"Preventing that tax hike has been my top priority, because the last thing folks like the folks up here on this stage can afford right now is to pay an extra $2,000 in taxes next year," he said in an auditorium with a group of cheering people behind him and in the audience. "Middle-class families can't afford it. Businesses can't afford it. Our economy can't afford it."
The White House refused to identify any of the people or say how it knew they were in the middle class.
"I know the president has fun heckling Congress," said Sen. Bob Corker, R-Tenn. "It's unfortunate that he doesn't spend as much time working on solving problems as he does with campaigns and pep rallies."
If a deal fails, Sen. Joe Manchin, D-W.Va., introduced a bill – the Cliff Alleviation at the Last Minute – that would phase in the looming tax increases over three years, rather than all at once, and allow the Office of Management and Budget to pick which programs would be cut rather than having the across-the-board cuts contained in sequestration.
"This is not a great plan, merely a better plan than going over the cliff," Manchin said in a floor speech. "It should never have come to this."
Lesley Clark, Kevin G. Hall and David Lightman contributed.
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By Anita Kumar and William Douglas
McClatchy Newspapers