WASHINGTON — Vice President Joseph R. Biden Jr. and Senator Mitch McConnell, the Republican leader, on Monday reached agreement on a tentative deal to stave off large tax increases starting on Tuesday, but remained stuck on whether and how to stop $110 billion in across-the-board spending cuts in 2013, an official familiar with the negotiations said.
Speaking at the Eisenhower Executive Office Building, adjacent to the White House, President Obama took note of the progress.
“Today it appears that an agreement to prevent this New Year’s tax hike is within sight, but it is not done,” he said. “There are still issues left to resolve, but we are hopeful that Congress can get it done. But it is not done.”
Mr. Obama used the occasion to warn Republicans that he would continue to press for more tax increases even beyond whatever may be included in a deal now. “If Republicans think I will finish the job of deficit reduction through spending cuts alone,” he said, then “they’ve got another thing coming. That’s not how it’s going to work.”
Republicans responded to the president’s speech angrily, accusing him of “moving the goal posts” just when a deal was in reach. They said that they knew that the two sides still had to agree on how to suspend the automatic spending cuts, but that they generally agreed that such a suspension would be offset, at least partially, by spending cuts elsewhere. Instead, the president said any deal to turn off the so-called sequester had to be financed by tax increases and spending cuts in concert.
“My heart is still pounding,” said Senator Bob Corker, Republican of Tennessee, expressing anger broadly felt by Republicans who said they were blindsided.
Mr. McConnell, of Kentucky, went to the Senate floor Monday afternoon, calling on Congress to act on the tax agreement and leave a deal on automatic spending cuts for the coming days. “Let’s pass the tax relief portion now,” he said. “Let’s take what’s been agreed to and get moving. The president wants this, members of Congress want to protect taxpayers, and we can get it done now.”
Under the emerging deal, income taxes would rise to 39.6 percent from 35 percent on income over $400,000 for single people and $450,000 for couples. Above those income levels, dividends and capital gains tax rates would also rise, to 20 percent from 15 percent.
The official familiar with the deal stressed that taxes would rise in some sense on the top 2 percent of earners, as Mr. Obama had wanted. That is because the deal would reinstate provisions to tax law, ended by the Bush tax cuts of 2001, that phase out personal exemptions and deductions for the affluent. Those phaseouts, under the agreement, would begin at $250,000 for single people and $300,000 for couples.
The estate tax would also rise, but considerably less than Democrats had wanted. The value of estates over $5 million would be taxed at 40 percent, up from the current 35 percent. Democrats had wanted a 45 percent rate on inheritances larger than $3.5 million.
Under the deal, the new rates on income, investment and inheritances would be permanent.
Mr. Obama and the Democrats would be granted a five-year extension of tax cuts they won in the 2009 stimulus law for middle-class and working-poor taxpayers. Those include a child credit that goes out as a check to workers who do not earn enough money to pay income taxes, an expanded earned income credit and a refundable credit for tuition.
Democrats also secured a full year’s extension of unemployment insurance without strings attached, a $30 billion cost.
All combined, the official said, the new package would raise about $600 billion over 10 years, compared to the revenue generated if current tax levels were simply extended. That, he said, is 85 percent of the revenue Democrats had wanted to raise under Mr. Obama’s initial proposal, which would have raised around $700 billion.
In addition, the deal would stave off sharp cuts for one year to health care providers who treat Medicare patients. That cost, about $30 billion, would be paid for with cuts to other health care programs.
But a final deal is being held up by one last question: What to do about $110 billion in automatic spending cuts set to begin Jan. 2.
While Republicans want them to go into force unless they are replaced by spending cuts elsewhere, Senate Democrats want to put them on “pause” for at least a year. All sides are angry over the impasse.
Mr. McConnell’s solution is likely to be resisted by Democrats, who will see it as a clear Republican victory with the spending cuts remaining in place. But many Republicans are just as opposed to those cuts as Democrats because they hit defense programs especially hard. Pressure would continue to mitigate or reverse the damage.
“Let me be clear,” Mr. McConnell said, “we will continue to work on finding smarter ways to cut spending, but let’s not let that hold up protecting Americans from the tax hike that will take place in about 10 hours. We can do this. We must do this.”
Shape of Fiscal Deal Emerging, but Spending Still at Issue
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Shape of Fiscal Deal Emerging, but Spending Still at Issue
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Shape of Fiscal Deal Emerging, but Spending Still at Issue
