By Alexander Bolton - 12/31/12 11:38 PM EST
Senate leaders and Vice President Biden are putting the finishing touches on an agreement to extend income tax rates for the vast majority of the country, just hours before the "fiscal cliff" deadline.
The agreement will extend Bush-era income tax rates on individual income up to $400,000 and on family income up to $450,000, according to a senior GOP aide. It will adjust the estate tax rate to 40 percent, up from 35 percent, but maintain the exemption for all inheritances below $5 million, the aide said.
“I can report that we’ve reached an agreement on all of the tax issues,” McConnell said. “We are very, very close.”
Republican leaders in the House, meanwhile, said they would not hold a late-night vote even if tax and spending legislation cleared the Senate, guaranteeing that the nation will go over the fiscal cliff at midnight, if only for a few hours.
Going over the fiscal cliff could make it easier to move a bill through the House. A vote on Jan. 1 would then be tantamount to a tax cut, not an increase, since the higher rates would have taken effect.
As of late Monday afternoon, there was no word from McConnell, Biden or Senate Majority Leader Harry Reid (D-Nev.) about a final deal, though there appeared to be progress on another major sticking point.
McConnell told his GOP colleagues that an agreement had been reached to postpone $109 billion of the automatic spending cuts from sequestration for two months, though Senate Democrats had yet to sign off on it.
President Obama signaled progress earlier Monday when he said the tentative agreement would extend tax credits for families with children, college tuition tax breaks, and tax incentives for renewable energy development. He said it would also extend unemployment benefits, a key Democratic demand.
“Today it appears that an agreement to prevent this New Year’s tax hike is within site but it’s not done. There are still issues left to resolve, but we’re hopeful Congress can get it done. But it’s not done,” Obama said at a campaign-style rally in Washington.
Biden visited the Senate Monday afternoon to give Democratic lawmakers an update on the talks.
The emerging package has alarmed a small group of liberal Democrats who are concerned it will enshrine tax rates for individuals and families earning many times above the national average.
Democrats such as Sen. Tom Harkin (Iowa) worry the package will do little to protect middle-class families from Republican demands to reduce spending on social safety-net programs when Congress has to increase the federal debt ceiling in two months.
“We’re going to lock in forever the idea that $450,000 a year is middle class in America? Need I remind people that at $250,000 a year, that’s the top 2 percent income earners in America?” said Harkin, chairman of the Health, Education, Labor and Pensions Committee. “I know the president keeps saying he wants to protect tax cuts for the middle class.
“Have we forgotten average income earners in America are making $25,000, $30,000, $40,000, $60,000 a year?” he said. “That’s the real middle class in America and they are the ones getting hammered now.”
Harkin and liberal Sens. Al Franken (D-Minn.), Jeff Merkley (D-Ore.) and Bernie Sanders (I-Vt.) were spotted walking to Reid's office to air their concerns about the emerging compromise. Sen. Jay Rockefeller (D-W.Va.) headed to Reid’s office on their heels.
Emerging from Reid's office, Sanders declined to say whether he would oppose the deal.
"We'll see what the vice president says," Sanders said. "We'll see what's in the deal."
Russell Berman, Erik Wasson and Molly K. Hooper contributed.
This story has been updated.