WASHINGTON – A deal was emerging Monday that would raise taxes on incomes, including investments, for taxpayers making more than $450,000 a year – although the two sides remain divided on what to do about the automatic spending cuts that make up part of the year-end “fiscal cliff.”
The contours of the agreement between Vice President Joe Biden and the Republican leader of the Senate, Mitch McConnell, represents a significant compromise for Democrats, as well as Republicans, making it uncertain it could pass Congress in the hours remaining before a midnight deadline.
More than $600 billion in revenue would be raised – far less than the target President 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.
Without action, taxes will automatically rise on New Year’s Day and massive spending cuts would start the next day in a potentially upsetting jolt to the economy.
The president was set to speak, surrounded by middle-class Americans, at 10:30 a.m. Pacific time in an event on the White House grounds.
The agreement would set the top tax rates at 39.6% for income above $450,000 for households and $400,000 for singles, 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.
The estate tax, which has been a key sticking point throughout the weekend of negotiations, appears to have been settled. The agreement cuts 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.
One area that hewed closer to Democratic priorities was the income level for phasing out deductions on upper income households, which would be set at $250,000.
Even with these thorny tax issues all but resolved, a deal remains in doubt.
The vice president and the Senate Republican leader continue to discuss the mandatory budget cuts coming Jan. 2 that both sides also want to address.
Those cuts had been set as a last-ditch trigger after a previous deficit-reduction effort failed. Lawmakers had hoped the severity of the reductions that slice across defense and domestic accounts would spur negotiations for a broader budget deal.
Republicans want no reductions, or at most, reductions only for a month, which would set up another budget battle quickly in the new year. Democrats prefer to postpone those cuts for a year to allow a longer timetable for further talks.
The outlines of this deal stemmed from hours of negotiating between Biden and McConnell that ran well past midnight Sunday and picked up again early Monday morning. The proposal, however, was being met with mixed results in Congress.
Staff writer Michael A. Memoli contributed to this report.