This story has been updated.
Vice President Biden and Senate Minority Leader Mitch McConnell were close to a deal Monday to cancel historic tax hikes for most Americans. But they were still hung up on spending, with Democrats resisting a GOP proposal to delay automatic spending cuts for just three months.
As President Obama prepared to deliver remarks about the "fiscal cliff" at 1:30 p.m. at the White House, negotiators for the administration and McConnell (R-Ky.) appeared to have nailed down many of the most critical tax issues, including a plan to let taxes rise on income over $450,000 a year for couples and $400,000 a year for individuals, according to people in both parties familiar with the talks.
Households earning less than that would largely escape higher income tax bills, though couples earning more than $300,000 a year and individuals earning more than $250,000 would lose part of the value of their exemptions and itemized deductions, under the terms of the emerging agreement.
Low-income households would also benefit from an a five-year extension of credits for college tuition and the working poor first enacted as part of Obama’s stimulus package in 2009. And businesses would see a variety of popular tax breaks extended, including a credit for research and development.
The tax on inherited estates would rise from 35 percent to 40 percent, though Democrats agreed to keep the current exemption for estates worth up to $5 million in place. And nearly 30 million households would be protected from paying the Alternative Minimum Tax for the first time, either on their 2012 returns or at any time in the future.
The two sides also appeared to have reached consensus on unemployment benefits, with Republicans conceding to Democratic demands to keep benefits flowing to the long-term unemployed for another year. Medicare payments would not be cut for doctors next year, and the cost of preserving those programs would not be offset with other spending cuts.
However, negotiators were still at odds over how to handle the automatic spending cuts, known as the “sequester,” which are set to reduce budgets at the Pentagon and other federal agencies in the New Year. Democrats initially demanded that the cuts be delayed until 2015, but Republicans balked, arguing that the cost of any delay should be covered through additional spending cuts.
Instead of delaying the cuts for two years, at a cost of more than $200 billion, Republicans suggested delaying the sequester for three months – a cost of $33 billion, according to people close to the talks. It was unclear Monday whether hangup was the brevity of the extension, or the need to identify offsetting spending cuts.