Senate, White House strike fiscal cliff deal

10:02 PM, Dec 31, 2012   |    comments
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(USA TODAY) - Facing a midnight deadline, Congress and the White House struck a "fiscal cliff" deal Monday night designed to avoid automatic tax hikes and budget cuts set to take effect in the new year.

Vice President Biden traveled to Capitol Hill late Monday to meet with Senate Democrats, including those who have expressed skepticism about the proposed agreement struck with Republican leader Mitch McConnell.

The proposal would extend the George W. Bush-era tax cuts for family incomes below $450,000, rates that are due to expire at midnight; the plan would also delay, for two months, across-the-board spending cuts to defense and domestic programs that are also part of the fiscal cliff, according to sources familiar with the negotiations. They spoke anonymously because they were not authorized to speak on the record.

The full Democratic-run Senate must still approve the plan -- and so must the Republican-controlled House.

It's not known whether the Senate will vote tonight on the plan or wait until Tuesday; that's one of the subjects of the Democratic caucus meeting with Biden; the House is scheduled to reconvene on Tuesday, New Year's Day.

One set of taxes is set to go up in 2013: The proposed deal does not address the end of the payroll tax holiday on Tuesday. That tax will rise by 2%, back to its 2010 level.

The final details came together hours after President Obama said Congress was making progress on a short-term deal to avert the fiscal cliff.

As the day dragged on, negotiations narrowed to a Democratic offer to pay for the spending cuts for two months, estimated to cost $24 billion, a McConnell spokesman said. Republicans wanted additional cuts to make up for supplanting those cuts and sent Democrats a list outlining $130 billion of suggested cuts for Democrats to consider.

Senators were awaiting guidance from Senate Majority Leader Harry Reid, D-Nev., who chaired the caucus meeting.

At his White House event earlier in the day, Obama told an audience of cheering supporters that a proposal would help reduce the nation's $16 trillion-plus debt through higher taxes on the wealthy. He also said it would also extend unemployment insurance and preserve tax credits for such middle class items as child care and education.

The campaign-style event chafed some congressional Republicans. Obama's 2008 presidential rival Sen. John McCain, R-Ariz., criticized it as "a cheer-leading, ridiculing-of-Republicans exercise."

According to officials familiar with the talks, there is consensus to allow the Bush-era rates to expire for individuals earning above $400,000 and joint filers above $450,000. Negotiators have also agreed to an increase in the estate tax rate from 35% to 40% on inheritances of more than $5 million.

The president said he would have preferred a bigger debt reduction deal, but congressional Republicans balked and now it will have to be done "in stages." Down the line, Obama said he will continue to insist that debt reduction be balanced with revenues as well as spending cuts, foreshadowing a second term defined by budgetary clashes with Republicans.

"It's going to have to be a matter of shared sacrifice, at least as long as I'm president," Obama said. "And I'm going to be president for the next four years, I hope."

Obama also cracked a joke about lawmakers: "And one thing we can count on with respect to this Congress is that if there is even one second left before you have to do what you're supposed to do, they will use that last second."

Negotiations pivoted on how and whether to turn off the impending $110 billion in spending cuts scheduled for 2013. They are part of the automatic $1.2 trillion in cuts over 10 years that Congress approved in the summer of 2011 when they failed to come up with deficit reduction on their own.

Republicans object to using new revenue to pay for the cuts because it negates the overarching goal of deficit reduction. "Everybody in this body knows that we've done nothing–nothing–to reduce a penny of debt in this country," said Sen. Bob Corker, R-Tenn. Any proposal to use revenue to pay for spending without additional cuts will likely face significant opposition among Republicans, particularly in the GOP-controlled House.

Speaker John Boehner, R-Ohio, has said he will bring to the floor whatever passes the Senate, but he has cautioned that his chamber reserves the right to amend -- or defeat -- the proposal.

It was unclear how much support the package will have in the House, but McConnell spokesman Don Stewart was optimistic the chamber could approve the package after the Senate sends it over. "(McConnell) has spoken to the speaker throughout the entire process," said Stewart.

Biden has proven a late but potentially crucial player in the budget negotiations. Frustrated by his failure to make progress with Reid over the weekend, McConnell called on Biden to step in and help move the talks forward. The two have remained in constant contact since then, McConnell said. "I'm happy to report the effort has been a successful one," he said.

Without action, all of the Bush-era tax rates expire at midnight resulting in a tax increase on practically every American household.

The administration's willingness to raise the threshold for higher tax rates above the president's campaign pledge for earners above $250,000 was met with resistance by liberals. "This is one Democrat that doesn't agree with that at all," said Sen. Tom Harkin, D-Iowa. "I think that's grossly unfair." Harkin said that most Americans earn between $25,000-$60,000. "And they're the ones getting hammered right now," he said.

The AFL-CIO labor union, a major supporter of the Democratic Party, also raised objections to reported details of a possible agreement. In a tweet, AFL-CIO President Richard Trumka said the proposal gives Republicans the chance of "further destabilizing hostage taking" in the weeks ahead over raising the debt ceiling.

If Congress had failed to act, Obama had asked Reid to bring to the floor a stripped-down plan that would include a renewal of unemployment insurance and an extension of the Bush tax cuts for middle-class Americans who make less than $250,000 a year.

"Republicans will have to decide if they're going to block it, which will mean that middle-class taxes do go up," President Obama said on Sunday on NBC's Meet the Press.

Budget conflicts have been a recurring theme in the 112th Congress, which ends Thursday at noon when nearly 100 new House and Senate lawmakers will be sworn in to office.

The Democratic president and divided Congress first clashed in spring 2011 over a near-government shutdown. Tensions continued that summer during the fight over raising the national debt limit.

Such tensions are likely to happen again in 2013. Congress must approve in mid-February an increase in the $16.4 trillion debt ceiling, the nation's borrowing authority, and in late March when the current federal funding runs out and another government shutdown threat looms if the partisan gridlock continues.

"When the president said today that round two is the debt ceiling, he is right," said Sen. Lindsey Graham, R-S.C. Republicans will fight for spending cuts, particularly in entitlement programs like Medicare, in exchange for the required congressional approval to raise the debt ceiling. "If that's too much to ask, so be it," he said.

Susan Davis and David Jackson, USA TODAY

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