The framework of a deal to avoid the 'fiscal cliff' appeared to be in place Monday, but the U.S. House of Representatives will miss the midnight deadline to avoid wide-ranging tax increases and spending cuts that take effect with the new year.
Democrats and Republicans have agreed to raise tax rates on wealthy families, hike the estate tax rate and extend unemployment benefits for another year, officials familiar with the negotiations said.
But House Republicans notified legislators that the chamber will vote Monday evening on other bills. They say that will be their only votes of the day.
U.S. President Barack Obama and Senate Republican leader Mitch McConnell said Monday they are near a deal, but were still bargaining over whether — and how — to avoid $109 billion in cuts to defence and domestic programs that take effect on Wednesday. Democrats want to put off the cuts for one year and offset the so-called sequester with unspecified revenue.
It remained unclear whether the Senate would vote Monday. Congress could pass later legislation retroactively blocking the tax hikes and spending cuts.
Without a deal, at midnight the U.S. economy will go over the "fiscal cliff" — the term that has been coined to describe the combination of a series of tax hikes set to come into effect on Jan. 1, 2013, just as hundreds of billions worth of government spending programs are due to be clawed back.
Together, experts say it could be a $600 billion jolt to the U.S. economy, enough to push it back into recession as Americans are asked to pay more for their government, and get less for their tax dollars.
At a press conference at the White House, President Barack Obama said "today it appears that an agreement … is within sight, but it's not done."
"There are still issues to resolve but we're hopeful Congress can get it done," he said.
Officials emphasized that negotiations were continuing and the emerging deal was not yet final.
That's not to suggest that whatever in the works is a permanent solution. Obama said he initially hoped the talks could produce a "grand bargain" that would chart a clear course on America's taxation and spending policies for an extended period tax, but said that "with this Congress, it couldn't happen at that time."
"It may be [that] we can do it in stages," Obama said. "We're going to solve this problem instead in several steps."
The proposal in the works would raise the tax rates on family income over $450,000 to 39.6 per cent, the same level as under former President Bill Clinton. Also, estates would be taxed at 40 per cent after the first $5 million, up from 35 per cent to 40 per cent.
Tax credits related to tuition and clean energy companies could also apparently be spared for now. And Unemployment benefits would be extended for one year for Americans "who are still out there looking for a job," Obama said.
Without that extension, two million Americans will lose their benefits early in the new year.
A cut in payroll taxes that has been in effect for two years appears to be off the table, however, which means every American with a job can expect at least a modest tax hike starting in the new year.
A Republican official familiar with the plans confirmed the details described to The Associated Press.
The officials requested anonymity in order to discuss the internal negotiations.
Despite the progress in negotiations, Senate Majority Leader Harry Reid warned that time was running out to finalize the deal.
"Americans are still threatened with a tax hike in just a few hours," Reid said as the Senate began an unusual New Year's Eve session.
Democratic Senator Tom Harkin of Iowa took to the Senate floor after Reid to warn Democratic bargainers against lowering levies on large inherited estates and raising the income threshold at which higher tax rates would kick in.
"No deal is better than a bad deal. And this look like a very bad deal the way this is shaping up," said Harkin.
Urgent talks were continuing Monday afternoon between the White House and congressional Republicans, with longtime negotiating partners Vice-President Joe Biden and Senate Republican leader Mitch McConnell at the helm.
An agreement on the proposed deal would also shield Medicare doctors from a 27 per cent cut in fees and extend tax credits for research and development, as well as renewable energy.
The deal would also extend for five years a series of tax credits meant to lessen the financial burden on poorer and middle-class families.
The deal would achieve about $600 billion in new revenue, the officials said.