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.
"It is a compromise, so we don't love it," said a senior White House official. "But it is the right thing to do for the economy."
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 deal also would affect taxes on investment income and estates, and extend unemployment benefits for a year, the congressional sources added.
A vote could come tonight or Tuesday in the Senate, and likely Tuesday in the House, which has adjourned for the evening.
But the deal, if it can pass through Congress, does not entirely solve the problem of the "fiscal cliff." In fact, it could set up a new showdown over the same spending cuts in just two months that would be amplified by a brewing fight over how to raise the debt ceiling beyond $16.4 trillion. That new fiscal battle has the potential to eclipse the "fiscal cliff" in short order.
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.
"The end is in sight," said a Democratic aide with the office of Senate Majority Leader Harry Reid, D-Nev. "If everyone cooperates its possible things can move pretty quickly."
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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.
After the deadline passes, lawmakers could still prevent a tax hike by making retroactive any legislation that passes in the weeks ahead, experts said. The IRS said it has not yet advised employers to withhold more from their employees' paychecks, pending a deal.
Earlier, during a midday news conference, Obama said he was 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.
Capital gains taxes would rise to 20 percent, according to a senior White House official.
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, congressional sources said.
"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.
At the time, McConnell said that federal spending cuts remained a sticking point. That hurdle later appeared to be cleared by postponing the debate two more months.
The White House had proposed a three-month delay of the cuts to allow more time to hash out details for deficit reduction, while many Senate Democrats wanted a flat one-year delay. Republicans insisted 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."
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.
