Tentative Deal Is Reached to Raise Taxes on the Wealthy

While some senators pushed for a quick vote on legislation to avoid the so-called fiscal cliff, the House was not expected to consider any deal until Tuesday at the earliest, meaning that a combination of tax increases and spending cuts would go into effect in the first days of 2013. If Congress acts quickly and sends a deal to President Obama, the economic impact could still be very limited.

Under the agreement, tax rates would jump to 39.6 percent from 35 percent for individual incomes over $400,000 and couples over $450,000, while tax deductions and credits would start phasing out on incomes as low as $200,000, a clear win for President Obama, who campaigned on higher taxes for the wealthy.

“Just last month Republicans in Congress said they would never agree to raise tax rates on the wealthiest Americans. Obviously, the agreement that’s currently being discussed would raise those rates and raise them permanently,” Mr. Obama crowed at a hastily arranged news briefing, with middle-income onlookers cheering behind him.

In a  development that pushed lawmakers closer to a resolution, Senate Republicans said negotiators also agreed to put off $110 billion in across-the-board cuts to military and domestic programs for two months while broader deficit reduction talks continue. Those cuts begin to go into force on Wednesday Jan. 2, and that deadline too might be missed before Congress approves the deal.

The nature of the deal ensured that the running war between the White House and Congressional Republicans on spending and taxes will continue at least until the spring. Treasury Secretary Timothy F. Geithner formally notified Congress that the government reached its statutory borrowing limit on New Year’s Eve. Through some creative accounting tricks, the Treasury Department can put off action for perhaps two months, but Congress must act to keep the government from defaulting just when the “pause” on pending cuts is up. Then in late March, a temporary law financing the government expires.

And the new deal does nothing to address the big issues that President Obama and Speaker John A. Boehner hoped to deal with in their failed “grand bargain” talks two weeks ago: booming entitlement spending and a tax code so complex few defend it anymore.

Though the tentative deal had a chance of success, it landed with a thud on Capitol Hill. Republicans accused the White House of “moving the goal posts” by demanding still more tax increases to help shut off across-the-board spending cuts beyond the two-month pause. Democrats were incredulous that the president had ultimately agreed to around $600 billion in new tax revenue over 10 years when even Mr. Boehner had promised $800 billion. But the White House said it had also won concessions on unemployment insurance and the inheritance tax among other wins.

Still, Democrats openly worried that if Mr. Obama could not drive a harder bargain when he holds most of the cards, he will give up still more Democratic priorities in the coming weeks, when hard deadlines will raise the prospects of a government default first, then a government shutdown. In both instances, conservative Republicans are more willing to breach the deadlines than in this case, when conservatives cringed at the prospects of huge tax increases.

“I just don’t think Obama’s negotiated very well,” said Senator Tom Harkin, Democrat of Iowa.

But as night fell over Washington on New Year’s Eve, senators seemed worn down and resigned. “Everybody by this time is angry, but sooner or later this has to be resolved,” said Senator Orrin G. Hatch of Utah, the ranking Republican on the Senate Finance Committee.

Jennifer Steinhauer and Robert Pear contributed reporting.

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