New York: PresidentBarack Obamaand Congressional Republicans pulled a rabbit out of a hat. They sealed a budget deal to avoid steep tax rises and spending cuts known as the "fiscal clif" in the shadows of the end-of-year deadline.
The Wall Street Journal reported that the deal also delays for two months part of the $110 billion in spending cuts that otherwise would have taken place in early January.
In perhaps a hopeful sign, Senate Republican leader Mitch McConnell at least wants the Senate to vote on the new tax agreement and hold off on sequestration discussions until later in January. If the Senate votes on the deal on Monday night, House leaders have said they will consider the bill although it is unclear if the House Republican leader John Boehner will be able to rally enough fellow Republicans to pass the Senate bill.
It is now official that the House of Representatives will not vote on any budget deal out of the Senate, which means the US will technically go over the fiscal cliff on the Monday midnight deadline.
The missed deadline is unlikely to cause any immediate economic damage. However, economists have warned that if the parties fail to quickly vote through a compromise then the "cliff" which is a $607 billion combination of new taxes and government spending cuts could tip the soft US economy into a recession. Delays will cause tension across Washington and increase the cloud of uncertainty over the American economy.
"We don't have anything to vote on before midnight," Brendan Buck who is the spokesman for Republican House Speaker John Boehner tweeted. "The House will take action after the Senate passes something."
The tentative Senate deal will raise tax cuts on couples making more than $450,000 a year, increase taxes on large inheritances and extend unemployment benefits for a year.
CNBC cited officials familiar with the Senate negotiations as saying that the US government would raise $600 billion in revenue over the next 10 years by increasing tax rates for individuals making more than $400,000 and households making above $450,000 annually.
CNBC added that the deal also would extend for five years a series of tax credits meant to lessen the financial burden on poorer and middle-class families, including one credit that helps Americans pay for expensive college.
The prospect of a deal to avert at least middle class tax rises boosted equity markets earlier Monday as President Barack Obama said an agreement was "in sight," but needed more work.
Obama's comments nudged the Dow Jones industrial average to close up 166.03 points or 1.28 percent to end at 13,104.14. For 2012, the Dow rose 7.3 percent while the technology-heavy Nasdaq jumped 15.9 percent.
"Today it appears that an agreement to prevent this middle class tax hike is in sight," Obama said in an afternoon appearance from the White House.
Later in his remarks, Obama did take a swipe at the propensity of lawmakers to painfully drag their feet: "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."
The tentative Senate deal shows the Democrats are being flexible in brokering a deal as they previously only wanted tax rate extensions for earnings under $200,000 for individuals and $250,000 for couples.