‘Fiscal cliff’ deal pleases few; House unlikely to vote Monday

WASHINGTON – Details of the emerging “fiscal cliff” deal ricocheted through the Capitol on Monday, appearing to please almost no one from either political party, as President Obama urged negotiators toward a conclusion. A House vote appears unlikely on Monday, even if a deal is finished.

The contours of the agreement between Vice President Joe Biden and the Republican leader of the Senate, Mitch McConnell, put into sharp focus the compromises that need to be stomached if a deal was to be struck. The outcome remained uncertain as the country prepared to go off the “fiscal cliff.”

Even if agreement could be reached to have a Senate vote before the midnight deadline, when taxes on all Americans would rise if nothing was done, Speaker John A. Boehner (R-Ohio) was unlikely to call a vote in the House until Tuesday.

“We are very, very close,” said an upbeat McConnell on the Senate floor after Obama spoke on the White House grounds and called on the country to urge lawmakers to finish. “We can do this.”

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The emerging deal would raise taxes on income and investments for wealthier Americans – those households making more than $450,000 a year or individuals earning more than $400,000– although the two sides remain at odds over the automatic spending cuts that make up part of the “fiscal cliff.”

McConnell and Biden continued talking throughout the afternoon Monday, as lawmakers prepared to hunker down for a long New Year’s Eve under the dome. A final deal could be voted on first by the Senate, possibly late Monday.

One result became increasingly clear, though: With many issues still unresolved, Washington was poised to continue the partisan budget battles that have defined recent years well into 2013.

As the sun began to set over the capital on a chilly winter day, rank-and-file lawmakers, both Democrats and Republicans, bristled at what they were being asked to accept.

The office of Senate Majority Leader Harry Reid, the hardscrabble Nevada deal-maker who stepped aside for Biden to negotiate with McConnell, offered a view of the level of concern. A revolving door of lawmakers came and went throughout the day.

Liberal Democrats objected that the White House was ceding too much to Republican demands and missing the opportunity for a broader budget deal. Conservative Republicans were upset at being asked to raise tax rates without reducing the deficit with steep cuts.

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“Republicans should kill the compromise if there are no spending cuts,” said Erick Erikson, the conservative founder of the influential Red State blog, in a tweet.

Both parties were under enormous pressure from their political bases not to give in to what some, including Sen. Tom Harkin (D-Iowa), a liberal leader, characterized as simply a “bad deal.”

More than $660 billion in revenue would be raised – far less than the target Obama first set in talks with congressional leaders. The president sought $1.6 trillion in new revenue from a large deficit-reduction package, and at least $800 billion in earlier talks with Republicans over a deal on tax increases.

The agreement would set the top tax rates at 39.6% for income above $450,000 for households and $400,000 for individuals, which is a narrower definition of who is wealthy than Obama once sought, according to a source who was not authorized to discuss the negotiations. The president won reelection campaigning on asking those who earn above $250,000 to contribute more in taxes.

Investment income tax rates would also rise for those higher-income households, from the historic low 15% rate on capital gains and dividends to a new 20% rate. The president had sought to tax dividends at the same rate as ordinary income, and his earlier offer sought to initiate those taxes at the lower $250,000 income threshold.

The estate tax, which has been a key sticking point throughout the weekend of negotiations, appears to have been settled. The agreement splits the difference, setting the new rate at 40% on estates valued at more than $5 million – a compromise between today’s 35% rate and the 45% rate Democrats sought on estates of $3.5 million or more.

Americans would benefit from an extension of long-term unemployment benefits, which expired over the weekend, for one full year.

One area that hewed closer to Democratic priorities was Obama’s proposal to reinstate the phaseout of personal exemption tax credits and itemized deductions on upper-income households. They had been in place before the George W. Bush-era tax cuts began in 2001, but were done away with over the past decade and would fully expire, with the rest of the tax breaks, on New Year’s Eve.

The agreement under consideration would set the income level for phasing out those deductions at $250,000 for households, which would lead to higher effective taxes on those households without the politically difficult move of increasing tax rates that Republicans have 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 to help the economy and those with more modest incomes.

Those tax credits include the $2,500 American Opportunity Tax Credit for college students, and additional tax 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 so-called Alternative Minimum Tax, a part of the tax code that was established decades ago to ensure high-income earners pay at least a certain amount of tax, rather than write off their liability with deductions. But it increasingly snares middle class families because it was never indexed to inflation. Congress must annually address the Alternative Minimum Tax issue, a problem that would be permanently resolved with Monday’s deal.

Even with these thorny tax issues all but resolved, a deal remains uncertain.

The vice president and the Senate Republican leader continued to discuss the mandatory budget cuts coming Jan. 2 that both sides also want to address.

By postponing the cuts for a month or two, as Republicans proposed, it all but ensures the budget battles will begin anew. Republicans suggested other spending cuts could be swapped for the automatic ones.

Democrats sought to postpone that reckoning for a year, lest Obama’s second term begin with a repeat of past budget battles.

Those cuts slice across defense and domestic programs had been set as a last-ditch trigger, designed to spur negotiations for a broader budget deal after an earlier deficit-reduction effort failed.

Staff writer Michael A. Memoli contributed to this report.

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lisa.mascaro@latimes.com

Twitter: @lisamascaroindc