Tentative Accord Reached to Raise Taxes on Wealthy

While the Senate moved toward a vote on legislation to avoid the so-called fiscal cliff, the House was not going to consider any deal until Tuesday afternoon at the earliest, meaning that a combination of tax increases and spending cuts would go into effect as 2013 began. If Congress acts quickly and sends the legislation 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 $250,000, 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,” Mr. Obama said at a hastily arranged news briefing, with middle-income onlookers cheering behind him. “Obviously, the agreement that’s currently being discussed would raise those rates and raise them permanently.”

Democrats also secured a full year’s extension of unemployment insurance without strings attached and without offsetting spending cuts, a $30 billion cost.

As negotiators tied up the last points of dispute, officials said that the two top Democrats on Capitol Hill — Senator Harry Reid of Nevada and Representative Nancy Pelosi of California — had signed off on the agreement. In an effort to win over other Democrats uneasy with the proposal, Vice President Joseph R. Biden Jr., who had bargained directly with Republican leaders, traveled to the Capitol on Monday night for a 90-minute meeting with his former Senate colleagues.

“I feel very, very good,” Mr. Biden said after the meeting. “I think we’ll get a very good vote.”

In one final piece of the puzzle, negotiators 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, and that deadline, too, might be missed before Congress approves the legislation.

To secure votes, Mr. Reid also told Democrats the legislation would cancel a pending congressional pay raise — putting opponents in the politically difficult position of supporting a raise — and extend an expiring dairy policy that would have seen the price of milk double in some parts of the country.

Anticipating Senate approval of the deal, Speaker John A. Boehner late Monday said the House would “honor its commitment to consider the Senate agreement if it is passed. Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members — and the American people — have been able to review the legislation.”

The nature of the deal ensured that the running war between the White House and Congressional Republicans on spending and taxes would 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 law financing the government expires.

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

Jennifer Steinhauer and Robert Pear contributed reporting.

Article source: http://www.nytimes.com/2013/01/01/us/politics/tentative-deal-is-reached-to-raise-taxes-on-the-wealthy.html?partner=rss&emc=rss