Sides put off cuts for two months

Fiscal

vent a “fiscal cliff” of tax increases and spending cuts.

As darkness fell on the last day of the year, Obama, Biden and their aides were at work in the White House, and lights burned in the House and Senate.

Democrats complained that Obama had given away too much in agreeing to limit tax increases to incomes over $450,000, far above the $250,000 level he campaigned on. Yet some Republicans recoiled at the prospect of raising taxes at all.

A late dispute over the estate tax produced allegations of bad faith from all sides.

Senate Republican leader McConnell — shepherding final talks with Biden — agreed with Obama that an overall deal was near.

In remarks on the Senate floor, he suggested Congress move quickly to pass tax legislation and “continue to work on finding smarter ways to cut spending” next year.

Later, Senate Republicans said negotiators agreed to put off $110 billion in across-the-board cuts to military and domestic programs for two months while deficit reduction talks continue.

While the deadline to prevent tax increases and spending cuts was technically midnight, passage of legislation by the time a new Congress takes office at noon Thursday — the likely timetable — would eliminate or minimize any inconvenience for taxpayers.

Economists in and out of government have warned that a combination of tax hikes and spending cuts could trigger a new recession, and the White House and Congress have spent the seven weeks since the Nov. 6 elections struggling for a compromise to protect the economy.

Obama used his appearance to chastise Congress, and to lay down a marker for the next round of negotiations early in 2013 when Republicans intend to seek spending cuts in exchange for letting the Treasury to borrow above the current debt limit of $16.4 trillion.

“Now, if Republicans think that I will finish the job of deficit reduction through spending cuts alone — and you hear that sometimes coming from them … then they’ve got another think coming. … That’s not how it’s going to work at least as long as I’m president,” he said. “And I’m going to be president for the next four years, I think,” he added.

Officials in both parties said agreement had been reached to prevent tax increases on most Americans, while letting rates rise on individual income over $400,000 and household earnings over $450,000 to a maximum of 39.6 percent from the current 35 percent. That marked a victory for Obama.

Officials said any agreement would also raise taxes on the value of estates exceeding $5 million to 40 percent, but a late dispute emerged on that point as well as on spending cuts.