Hours before a midnight deadline Monday, the
After a rare holiday session that lasted through the
The House, where
The deal would represent a milestone for Republicans, whose anti-tax stance has defined the party since then-President
It also would be a concession for
The deep automatic spending cuts scheduled to begin Wednesday — the other part of the "fiscal cliff" — would be pushed back just long enough to ensure that the partisan budget battles marking Obama's first term will also punctuate the beginning of his second. Negotiations over the cuts were expected to be rolled into talks about extending the nation's debt ceiling, a prospect Democrats promised to resist.
For Maryland, the Senate proposal would, for now, avoid potentially harmful spending cuts known as sequestration, but it would require lawmakers to revisit the issue in a few months — prolonging the uncertainty federal contractors and government employees in the state have been dealing with all year.
Asked about the possibility of a two-month delay of sequestration — an idea that arose Monday — Sen.
"I'm disappointed," the Maryland Democrat said in an interview. "We've already been impacted by the potential for sequestration. … A two-month extension is better than hitting a wall — but it's still bad news."
The $110 billion in cuts called for would be particularly painful in Maryland, given its proximity to Washington. Maryland is home to nearly 300,000 federal workers. Social Security, the
Private government contractors in Maryland, meanwhile, were awarded about $27 billion in work last year — among the highest per capita in the nation.
"It certainly casts a much greater degree of uncertainty over our planning," said O'Malley, a Democrat.
If the budget issues are not quickly resolved, O'Malley said, the state may have to increase the amount of money it allocates to its Rainy Day Fund — raising it above the 5 percent of the state's budget that is recommended by bond rating agencies.
O'Malley, who blamed the difficulty in reaching a deal on congressional Republicans, said Maryland and its neighbors are especially vulnerable to the defense and domestic budget cuts that would come with sequestration.
"Our region — Maryland and Virginia and D.C. — certainly stand to suffer greater harm than other regions of the country because of the federal presence and federal installations of health and security," he said.
The normally festive time of year fell serious Monday as details of the deal emerged. Vice President
Going off the so-called cliff may not be as disastrous as once envisioned, if lawmakers quickly pass legislation to fix it. And it could also have political benefits.
Pushing the votes to Tuesday accomplished a political back flip that would be particularly advantageous for anti-tax Republicans and has been discussed for months.
With the existing tax rates expiring at midnight Monday, Tuesday ushered in the new higher rates. If Congress acted Tuesday, the votes would be to lower tax rates on wealthier Americans, rather than raise them.
"Sequestration will be harmful to Maryland, but it will also be harmful to the country, which is why I think it's so important that we act," the Southern Maryland lawmaker said in an interview. "If we don't take care of sequestration in the next few hours, then there's no doubt that it will be a subject [dealt with] immediately" in the new year.
McConnell and Biden had been in close contact all day after having worked past midnight Sunday and then resumed again early Monday morning to craft the deal.
The minority leader convened Republican senators behind closed doors at dinner time, and many emerged optimistic that a deal was at hand.
"Hope springs eternal around here, even though it gets a little sticky at times," said Sen.
One result became increasingly clear: With many issues still unresolved, Washington was poised to continue the partisan budget battles that have defined Obama's first term well into this year.
Under the proposed deal, more than $660 billion in revenue would be raised — far less than the $1.6 trillion Obama first sought in new revenue when he still hoped for a large deficit-reduction package.
The agreement would set the top tax rates at 39.6 percent for income above $450,000 for households and $400,000 for individuals.
Tax rates on investment income would also rise for those higher-income households, from the historic low 15 percent rate on capital gains and dividends to 20 percent. The president had wanted to tax dividends at the same rate as ordinary income.
About 2 million out-of-work Americans would benefit, if the deal is approved, from a one-year extension of long-term unemployment benefits, which expired over the weekend.
One area that hewed closer to Democratic priorities was Obama's proposal to reinstate limits on how much upper-income households can benefit from personal exemption tax credits and itemized deductions. Those limits, in place before the
The agreement under consideration would reduce those deductions for households earning more than $250,000. That would lead to higher effective taxes on those households without an increase in their tax rates, which Republicans had resisted.
Other tax credits established under Obama's economic recovery program would also be extended for five more years. That provision is a nod to Democratic calls for more stimulus spending to help the economy and for adjustments to the tax code to help those with more modest incomes.
Those credits include a $2,500 tax credit for college students and additional credits that allow cash refunds even if no tax is owed for those with children and family incomes below $45,000.
The deal also includes a permanent fix for the Alternative Minimum Tax, a part of the tax code that was established decades ago to ensure high-income earners pay at least a minimum amount of tax, rather than substantially eliminate their liability with extensive deductions. But it increasingly snares middle-class families because it was never indexed to inflation. Congress must fix the Alternative Minimum Tax issue every year, a problem that would be finally resolved with Monday's deal.
Even with these thorny tax issues all but settled, the mandatory budget cuts that would start to reduce federal spending Wednesday remained a sticking point until late Monday.
The sequestration cuts slice across defense and domestic programs and had been set as a last-ditch trigger designed to spur negotiations for a broader budget deal after an earlier deficit-reduction effort failed.
Talks focused on postponing the cuts for two months, but offsetting the $24 billion that would not be saved. The White House and Republicans eventually settled on a mix of revenue increases and spending cuts.
Postponing the automatic cuts for two months, as the Republicans wanted, all but ensures the budget battles will continue. Democrats had hoped to postpone that reckoning for a year to keep Obama's second term from beginning with a repeat of past tumultuous budget battles.
Baltimore Sun reporter Michael Dresser contributed to this article.