WASHINGTON -- Hours past a self-imposed deadline for action, the Senate passed legislation early New Year's Day to neutralize a fiscal cliff combination of across-the-board tax increases and spending cuts that kicked in at midnight. The pre-dawn vote was 89-8.
Senate passage set the stage for a final showdown in the House, where a vote was expected later Tuesday or perhaps Wednesday.
Under the deal, taxes would remain steady for the middle class and rise at incomes over $400,000 for individuals and $450,000 for couples - levels higher than President Obama had campaigned for in his successful drive for a second term in office.
Spending cuts totaling $24 billion over two months aimed at the Pentagon and domestic programs would be deferred. That would allow the White House and lawmakers time to regroup before plunging very quickly into a new round of budget brinkmanship certain to revolve around Republican calls to rein in the cost of Medicare and other government benefit programs.
Shortly after the Senate vote, President Obama said, "While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay."
Obama also said the bill takes a balanced approach to shrinking the U.S. deficit by "investing in (the) middle class" while "asking the wealthy to pay a little more."
"This 11th-hour negotiation is no way to run a country, but I voted for this agreement because it protects 99 percent of Americans from a tax increase, permanently protects tens of thousands of farmers and family businesses from having to pay the estate tax upon the death of a loved one, and permanently fixes the alternative minimum tax to protect some 30 million households a year from having to pay it," said Sen. Johnny Isakson, R-Ga. "I am also pleased that this agreement reinstates the pay freeze for members of Congress. Now, it is time for the president to get serious about spending cuts and entitlement reforms, and I look forward to enacting significant measures in the coming weeks that will reduce our debt."
One set of taxes is set to go up in 2013: The deal does not address the end of the payroll tax holiday on Tuesday. That tax will rise by 2%, back to its 2010 level.
The deal also stops scheduled pay increases for Congress set for spring 2013 and includes a nine-month extension of the farm bill, which had been delayed for months because of differences between the House and Senate versions of the legislation that sets U.S. agricultural policy every five years.
The agreement also does not address any increase in the nation's debt ceiling, which -- combined with the delay of automatic spending cuts -- sets up the distinct possibility of another cliff-like budget battle in February.
The omission of the debt ceiling dismayed some liberal Democrats, including Sens. Tom Harkin of Iowa and Sherrod Brown of Ohio. Their criticism prompted Biden's visit to Capitol Hill late Monday.
"He's here to hear members' concerns and respond to them," said Reid spokesman Adam Jentleson.
"The argument is that this is the best that can be done on a bipartisan basis," said Sen. Dianne Feinstein, D-Calif., when asked about the case the vice president had delivered behind closed doors.
Biden played a critical role, Feinstein said. "I think it was very important," she said, noting that McConnell and Biden "have a long prior experience" working together. "That's the reason this is bipartisan."
Sen. Charles Schumer, D-N.Y., said he would put pressure on the House to pass the measure.
House Democratic Leader Nancy Pelosi, D-Calif, did not exactly endorse the deal either, saying in a statement: "When a final agreement is reached and passed by the Senate, I will present it to the House Democratic Caucus."
The final details came together hours after President Obama said Congress was making progress on a short-term deal to avert the fiscal cliff.
As the day dragged on, negotiations narrowed to a Democratic offer to pay for the spending cuts for two months, estimated to cost $24 billion, a McConnell spokesman said. Republicans wanted additional cuts to make up for supplanting those cuts and sent Democrats a list outlining $130 billion of suggested cuts for Democrats to consider.
At his White House event earlier in the day, Obama told an audience of cheering supporters that a proposal would help reduce the nation's $16 trillion-plus debt through higher taxes on the wealthy. He also said it would also extend unemployment insurance and preserve tax credits for such middle class items as child care and education.
The campaign-style event chafed some congressional Republicans. Obama's 2008 presidential rival Sen. John McCain, R-Ariz., criticized it as "a cheer-leading, ridiculing-of-Republicans exercise."
Down the line, Obama said he will continue to insist that debt reduction be balanced with revenues as well as spending cuts, foreshadowing a second term defined by budgetary clashes with Republicans.
"It's going to have to be a matter of shared sacrifice, at least as long as I'm president," Obama said. "And I'm going to be president for the next four years, I hope."
Obama also cracked a joke about lawmakers: "And one thing we can count on with respect to this Congress is that if there is even one second left before you have to do what you're supposed to do, they will use that last second."
Also earlier Monday, negotiations pivoted on how and whether to turn off the impending $110 billion in spending cuts scheduled for 2013. They are part of the automatic $1.2 trillion in cuts over 10 years that Congress approved in the summer of 2011 when they failed to come up with deficit reduction on their own.
Republicans object to using new revenue to pay for the cuts because it negates the overarching goal of deficit reduction. "Everybody in this body knows that we've done nothing-nothing-to reduce a penny of debt in this country," said Sen. Bob Corker, R-Tenn. Any proposal to use revenue to pay for spending without additional cuts will likely face significant opposition among Republicans, particularly in the GOP-controlled House.
In a joint statement from House Speaker John Boehner of Ohio and other GOP leaders, they announced the House will "honor its commitment" to take up the Senate bill. They also left open the possibility that the House could seek to amend the deal until their members were given an opportunity to review the deal.
It was unclear how much support the package will have in the House, but McConnell spokesman Don Stewart was optimistic the chamber could approve the package. "(McConnell) has spoken to the speaker throughout the entire process," said Stewart.
Biden has proven a late but potentially crucial player in the budget negotiations. Frustrated by his failure to make progress with Senate Majority Leader Harry Reid, D-Nev., over the weekend, McConnell called on Biden to step in and help move the talks forward. The two have remained in constant contact since then, McConnell said. "I'm happy to report the effort has been a successful one," he said.
The administration's willingness to raise the threshold for higher tax rates above the president's campaign pledge for earners above $250,000 was met with resistance by liberals. "This is one Democrat that doesn't agree with that at all," Harkin said. "I think that's grossly unfair." Harkin said that most Americans earn between $25,000-$60,000. "And they're the ones getting hammered right now," he said.
The AFL-CIO labor union, a major supporter of the Democratic Party, also raised objections to reported details of a possible agreement. In a tweet, AFL-CIO President Richard Trumka said the proposal gives Republicans the chance of "further destabilizing hostage taking" in the weeks ahead over raising the debt ceiling.
If Congress had failed to act, Obama had asked Reid to bring to the floor a stripped-down plan that would include a renewal of unemployment insurance and an extension of the Bush tax cuts for middle-class Americans who make less than $250,000 a year.
"Republicans will have to decide if they're going to block it, which will mean that middle-class taxes do go up," Obama said on Sunday on NBC's Meet the Press.
Budget conflicts have been a recurring theme in the 112th Congress, which ends Thursday at noon when nearly 100 new House and Senate lawmakers will be sworn in to office.
The Democratic president and divided Congress first clashed in spring 2011 over a near-government shutdown. Tensions continued that summer during the fight over raising the national debt limit.
Such tensions are likely to happen again in 2013. Congress must approve in mid-February an increase in the $16.4 trillion debt ceiling, the nation's borrowing authority, and in late March when the current federal funding runs out and another government shutdown threat looms if the partisan gridlock continues.
"When the president said (Monday) that round two is the debt ceiling, he is right," said Sen. Lindsey Graham, R-S.C. Republicans will fight for spending cuts, particularly in entitlement programs like Medicare, in exchange for the required congressional approval to raise the debt ceiling. "If that's too much to ask, so be it," he said.
The White House released the following statement from President Obama Tuesday morning:
Leaders from both parties in the Senate came together to reach an agreement that passed with overwhelming bipartisan support today that protects 98 percent of Americans and 97 percent of small business owners from a middle class tax hike. While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay.
This agreement will also grow the economy and shrink our deficits in a balanced way - by investing in our middle class, and by asking the wealthy to pay a little more.
What's more, today's agreement builds on previous efforts to reduce our deficits. Last year, I worked with Democrats and Republicans to cut spending by more than $1 trillion. Tonight's agreement does even more by asking millionaires and billionaires to begin to pay their fair share for the first time in twenty years. As promised, that increase will be immediate, and it will be permanent.
There's more work to do to reduce our deficits, and I'm willing to do it. But tonight's agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans. And as we address our ongoing fiscal challenges, I will continue to fight every day on behalf of the middle class and all those fighting to get into the middle class to forge an economy that grows from the middle out, not from the top down.