The so-called "fiscal cliff" will come at midnight with no congressional fix in place -- but now there is a specific deal on the table to try to soften it after the fact, according to congressional sources.
Vice President Joe Biden must still convince Senate Democrats to support the proposal -- which would extend Bush-era tax cuts permanently for people making less than $400,000 per year and households making less than $450,000, the sources said.
The steep "sequester" budget cuts scheduled to go into effect with the new year would be postponed two months, said sources. They said half the money would come from cuts elsewhere, and the other half from new revenue. The delay, however, would postpone debate on the cuts to coincide with another debate over raising the nation's debt ceiling.
The deal also would affect taxes on investment income and estates, and extend unemployment benefits for a year, they added. Capital gains taxes would rise to 20 percent, according to a senior White House official. The estate tax would rise to 40 percent for those with a net worth over $5 million.
A vote could come tonight or Tuesday in the Senate, and likely Tuesday in the House, which has adjourned for the evening.
Biden was asked to confirm the deal as he entered a meeting with Senate Democrats tonight, but only smiled and said, "Happy New Year."
"We're waiting to see how the vice president brings his party along," a McConnell aide said.
Even before news of the specifics of a deal emerged, Congress appeared likely to miss a midnight deadline to avert the cliff even as President Obama and Senate Republicans agreed in principle to avert year-end tax hikes on 98 percent of Americans.
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If the deadline passes, lawmakers could still prevent a tax hike by making retroactive any legislation that passes in the weeks ahead, experts say. The IRS said it has not yet advised employers to withhold more from their employees' paychecks, pending a deal.
During a midday news conference, Obama said he was still optimistic about compromise.
"It appears that an agreement to prevent this New Year's tax hike is within sight, but it's not done," he said. "There are still issues left to resolve, but we're hopeful that Congress can get it done."
Congressional and White House negotiators worked out a tentative plan that, in addition to extending current tax rates for households making $450,000 or less, would raise the estate tax from 35 to 40 percent for estates larger than $5 million; and prevent the alternative minimum tax from hammering millions of middle-class workers, according to sources familiar with the talks.
The deal would also extend for one year unemployment insurance benefits set to expire Tuesday, and avert a steep cut to Medicare payments for doctors.
"I can report that we've reached an agreement on the all the tax issues," said Senate Minority Leader Mitch McConnell in an afternoon speech on the Senate floor. He said that federal spending cuts remained a sticking point, though.
"We are very, very close," McConnell said today. "We can do this. We must do this."
The White House has proposed a three-month delay of the cuts to allow more time to hash out details for deficit reduction, while many Senate Democrats want a flat one-year delay. Republicans insist that some spending cuts should be implemented now as part of any deal.
"In order to get the sequester moved, you're going to have to have real, concrete spending cuts," said Rep. Mike Rogers, R-Mich. Without that, he said, "I don't know how it passes the House."
Delaying the sequester, the technical name for the slate of automatic spending cuts, would set up another equally high-stakes "cliff" for February or March when Congress would have to address the cuts and the nation's debt limit, which is set to be reached around that time.
Some Republicans also said Obama unduly complicated progress toward an agreement by seeming to take a victory lap on taxes at his campaign-style event at the White House.
"Keep in mind that just last month Republicans in Congress said they would never agree to raise tax rates on the wealthiest Americans," Obama said, raising the ire of several GOPers. "Obviously, the agreement that's currently discussed would raise those rates, and raise them permanently."
Those words drew a sharp retort from Republican Sen. John McCain.
Rather than staging a "cheerleading rally," McCain said, the president should have been negotiating the finishing touches of the deal.
"He comes out and calls people together and has a group standing behind him, laughs and jokes and ridicules Republicans. Why?" said McCain.
Several Democrats also voiced disappointment with the president and emerging deal.
