The White House and top Republicans have struck a deal to avert huge New Year tax hikes and spending cuts known as the “fiscal cliff” that had threatened to send the US economy into recession.
The pact would raise taxes on the richest Americans - those earning over $US450,000 ($A436,000) a year - but exempt everyone else, and will put off $US109 billion in budget cuts across the government for two months, top congressional aides said late on Monday.
Vice President Joe Biden, who negotiated the deal with Republican Senate Majority leader Mitch McConnell, was on Capitol Hill to sell it to Democratic senators, a White House source added.
Tax hikes and spending cuts were due to come into force on January 1. But as global markets, sure to be rocked by a failure to head off the fiscal cliff, are closed for New Year’s day, lawmakers have time to vote the deal into law.
A Senate vote was expected overnight on Monday while the House of Representatives was expected to follow suit on Tuesday after a display of dramatic New Year’s Eve brinkmanship.
The deal would mean a return to Bill Clinton-era tax rates for top earners to 39.6 per cent, starting at a threshold of annual household earnings of $US450,000 and above.
Obama had originally campaigned for tax hikes to kick in for those making $US250,000 and above and his acceptance of a higher threshold has already angered liberals, though still represents a political victory.
The President said it would extend tax credits for clean energy firms and also unemployment insurance for two million people due to expire later Monday.
It was also expected to include an end to a temporary two per cent cut to payroll taxes for Social Security retirement savings and Medicare health care programs for seniors and changes to inheritance and investment taxes.
The president angered Republicans in remarks in which he warned - in what is certain to be a bitter fight over cutting the deficit - that he was not done with seeking higher taxes for the rich.
“Now, if Republicans think that I will finish the job of deficit reduction through spending cuts alone... then they’ve another thing coming,” Obama said, and also poked fun at the glacial pace of Congressional deliberations.
Republicans immediately took to the floor of the Senate to complain.
Senator John McCain accused Obama of ridiculing Republicans and of needlessly antagonising House of Representatives’ members required to vote for the deal.
Republican Senator Bob Corker said his heart was pounding with disappointment at Obama’s remarks.
“I know the president has fun heckling Congress. I think he lost probably numbers of votes with what he did,” he said.
“It’s unfortunate he doesn’t spend as much time solving problems as he does with campaigns and pep rallies.”
Signs that a deal could be close cheered investors on Friday as US markets rose before closing for the year. The Dow Jones Industrial Average closed up 166.03 points (1.28 per cent) at 13,104.14.
Both sides were Monday already gearing up for the next legislative showdown over the need to lift the government’s statutory borrowing limit of $US16.4 trillion ($A15.8 trillion), which was reached on Monday.
The Treasury will now take extraordinary measures to keep the government afloat for an undisclosed period of time until the ceiling is raised. Republicans are already demanding spending cuts in return.
“I think there is going to be a pretty big showdown next time when we go to the debt limit,” McCain told CNN.