The White House reached a budget deal with Senate Republicans, and Vice President Joe Biden came to the Capitol to sell it to Democrats with tax increases for almost every U.S. worker set to take effect in a few hours.
Biden negotiated an agreement with Senate Minority Leader Mitch McConnell to increase taxes on top earners, extend expanded unemployment benefits and prevent automatic spending cuts from taking effect for two months, according to a person familiar with the talks who requested anonymity.
After more than 17 months of bickering, Congress and President Barack Obama have yet to finalize an agreement to avert more than $600 billion in tax increases and federal spending cuts scheduled to start in January. Even if a deal is reached and clears both chambers of Congress in coming days, it would be more limited than what Obama and leaders of both parties sought. It also would set up another fight early in 2013 over the budget and the debt ceiling.
Senate Majority Leader Harry Reid, the Nevada Democrat who controls the chamber’s schedule, told Obama that he would give Biden an opportunity to discuss the deal with the caucus, according to a senior Democratic aide. Reid told the president he would back the agreement if his caucus did, the aide said. No deal can reach the floor without Reid’s approval.
Some Senate Democrats expressed reservations about the accord, which would avert the so-called fiscal cliff. House Democratic Leader Nancy Pelosi of California released a statement tonight saying she would present the deal to her caucus “when a final agreement is reached and passed by the Senate.”
Senator Sheldon Whitehouse, a Rhode Island Democrat, said entering tonight’s caucus meeting that he was reserving judgment on the deal Biden and McConnell, a Kentucky Republican, had struck. Asked if he could support letting taxes expire on household income over $450,000 or whether Democrats should have held out for a lower threshold, Whitehouse said, “I’ll wait and see.”
Senator Barbara Mikulski, a Maryland Democrat, said leaving the caucus meeting that she planned to back the proposal and anticipated that it would have widespread Democratic support. Mikulski has been a vocal advocate of the $250,000 threshold.
“But we have to compromise,” she said in an interview. “We don’t want to go over the cliff.”
Taxpayers and investors won’t see immediate effects of the changes, which would accumulate over a matter of months. By acting early in 2013, Congress could reverse the tax and spending changes.
Under the deal, income tax cuts would be extended for household income up to $450,000, said an official who spoke on condition of anonymity, with rates rising to 39.6 percent on income above that level. Expanded unemployment insurance would be continued through 2013.
The estate tax exemption would be indexed for inflation as part of the deal, up from the $5.12 million per-person level in place in 2012, said a Senate aide familiar with the talks. That issue had been one of the final sticking points, said Senator Max Baucus, a Montana Democrat who heads the Finance Committee.
The House concluded business until noon tomorrow without taking action on the budget. The chamber’s Republican leaders left open the option to return tonight if needed.
The Standard & Poor’s 500 Index rallied 1.7 percent to 1,426.19 at 4 p.m. in New York. The 10-year Treasury yield increased six basis points, or 0.06 percentage point, to 1.76 percent at 2 p.m. in New York, according to Bloomberg Bond Trader prices.
To get a deal through the chamber before the new session of Congress begins Jan. 3 would require consent from all 100 senators. Several Democrats today registered their opposition to aspects of the McConnell-Biden deal because it includes rates higher than the $250,000 they and the president have been seeking.
Obama said early this afternoon that a deal to avert tax increases and spending cuts starting tomorrow was “within sight,” though it hadn’t been completed.
“It appears that an agreement to prevent this New Year’s tax hike is within sight, but it’s not done,” Obama said in nationally televised remarks to a group of what the White House described as middle-class taxpayers. He urged people to “keep the pressure on over the next 12 hours or so; let’s get this thing done.”
The president said the main sticking point was how to avoid the automatic federal spending cuts set to begin tomorrow. Those “may not always be the smartest cuts” and would affect defense as well as government services such as the Head Start education program, he said.
Half of the $24 billion cost of delaying the cuts would be covered by allowing 401(k) retirement account holders to convert some of their balances into Roth-style individual retirement accounts that can be tapped tax-free in retirement, said a Senate aide familiar with the talks.
The change would raise revenue because people who do such conversions pay income taxes up front. The conversions aren’t currently allowed in 401(k) plans, the aide said.
Representative Mike Rogers, a Michigan Republican, said House Speaker John Boehner has been “hands off” in the Senate negotiations. He said if a deal includes averting automatic cuts, it would need to include spending reductions in exchange for those.
“When it comes here we’ll figure out what we can pass,” Rogers told reporters about a possible deal. “If we don’t have real spending cuts, I don’t think it could pass the House of Representatives.”
Boehner, an Ohio Republican, has previously said he would bring any budget legislation passed by the Senate to the House floor, though members may decide to amend it.
Tax cuts first enacted during George W. Bush’s presidency are scheduled to expire tonight. Obama and other Democrats have sought to extend the reductions for married couples’ income up to $250,000 a year while letting tax rates rise for income above that amount. Republicans oppose tax rate increases for any income level.
Allowing the fiscal changes to take effect would cause a recession in the first half of 2013, according to the Congressional Budget Office.
If Congress does nothing, taxes will rise in 2013 by an average of $3,446 for U.S. households, according to the nonpartisan Tax Policy Center in Washington.
Tax filing for as many as two-thirds of U.S. taxpayers could be delayed into at least late March. Defense spending would be cut, and the economy would probably enter a recession in the first half of 2013, according to the CBO.