(Bloomberg) Senate Minority Leader Mitch McConnell said lawmakers in Congress are very, very close to a deal to avert $600 billion in tax increases and spending cuts set to start at midnight.
McConnell, a Kentucky Republican, on the Senate floor today called on lawmakers to pass the tax-relief portion of a budget agreement being negotiated that would continue lower tax rates for all but the highest earners.
The Dow Jones Industrial Average rose 137.99 points, or 1.1 percent, to 13076.10 at 3:04 p.m. The Standard & Poors 500 Index gained 20.62, or 1.5 percent, to 1423.05.
President Barack Obama said before McConnell spoke that a deal to avert tax increases and spending cuts starting tomorrow is within sight though it hasnt been completed.
It appears that an agreement to prevent this New Years tax hike is within sight, but its not done, Obama told a group of what the White House described as middle-class taxpayers. He urged people to keep the pressure on over the next 12 hours or so; lets get this thing done.
Lawmakers are seeking to avert tax increases and spending cuts that make up the so-called fiscal cliff. Even if a deal is reached and can get through both chambers of Congress, it would be more limited than Obama and leaders of both parties sought and would set up another fight early in 2013 over the budget and the federal debt limit.
The president said the main sticking point was how to avoid the automatic federal spending cuts set to begin tomorrow. Those may not always be the smartest cuts and would affect defense as well as programs like Head Start, he said.
Under a proposed deal, income tax cuts would be extended for annual income up to $450,000, said an official who spoke on condition of anonymity, with rates rising to 39.6 percent on income above that. Expanded unemployment insurance would be continued through 2013.
Some Senate Democrats expressed resistance toward an income threshold for increased tax rates that would be higher than the $250,000 they sought.
Senator Tom Harkin, an Iowa Democrat, said on the Senate floor this morning that he doesnt support a $450,000 income threshold, signaling that a deal reached by Vice President Joe Biden and McConnell could lose the votes of some Democrats.
This is one Democrat that doesnt agree with that -- at all, Harkin said on the Senate floor. Were going to lock in forever the idea that $450,000 a year is middle class in America?
Harkin didnt answer directly when asked later whether he might use Senate rules to block a deal he didnt agree with, saying only that there could be extended debate.
Capital gains and dividend rates would rise to 23.8 percent for top earners, including taxes as part of the 2010 health-care law, according to the official.
Estate tax rates would rise to 40 percent on amounts above $5 million per person. Extensions of business tax breaks would continue through the end of 2013. The measure would permanently prevent an expansion of the alternative minimum tax.
The Senate Finance Committee in August approved extending miscellaneous tax breaks through 2013, including benefits for wind energy, corporate research and multinationals overseas finance operations.
The potential deal also would avert a cut in Medicare payments to doctors through 2013.
Earlier in the day, Senate Majority Leader Harry Reid said negotiators could reach a U.S. budget deal today that would protect all but top earners from a tax increase next year.
Democrats have sought to delay the automatic federal spending cuts for two years, at a cost of $200 billion, though they havent identified other savings to pay for it.
Biden and McConnell are discussing a possible two-month delay in the spending cuts, while Senate Democratic leaders had been pushing for at least a yearlong extension, according to a congressional aide close to the negotiations. A two-month pause in the automatic cuts would require $24 billion in additional savings that Republicans are demanding in exchange.
Republicans insisted that the spending cuts be offset with savings elsewhere in the budget and that new revenue should be used to reduce the deficit.
Representative Mike Rogers, a Michigan Republican, said House Speaker John Boehner has been hands off in the Senate negotiations. He said if a deal includes averting automatic cuts, it would need to include spending cuts in exchange for those.
When it comes here well figure out what we can pass, Rogers told reporters. If we dont have real spending cuts, I dont think it could pass the House of Representatives. He said a House vote would be more likely tomorrow even if the Senate agreed on a plan today.
Boehner has previously said he would bring any budget legislation passed by the Senate to the House floor, though members may decide to amend it.
Tax cuts first enacted during George W. Bushs presidency are scheduled to expire tonight. Obama and other Democrats have sought to extend the reductions for married couples income up to $250,000 a year while letting tax rates rise for income above that amount. Republicans oppose tax rate increases for any income level.
Allowing the fiscal changes to take effect would cause a recession in the first half of 2013, according to the Congressional Budget Office.
In the event the Senate cant reach a compromise, Obama has asked Reid to ready a bare-bones bill for a vote today to extend expanded unemployment benefits and tax cuts on family income up to $250,000.
If Congress does nothing, taxes will rise in 2013 by an average of $3,446 for U.S. households, according to the nonpartisan Tax Policy Center in Washington.
Tax filing for as many as two-thirds of U.S. taxpayers could be delayed into at least late March. Defense spending would be cut, and the economy would probably enter a recession in the first half of 2013, according to the Congressional Budget Office.
The effects of the higher tax rates and federal spending cuts would accumulate over a matter of months. Congress could reverse them by acting retroactively in 2013.
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