The White House and congressional lawmakers have reached a deal to avoid the "fiscal cliff" that would delay harsh spending cuts by two months, an Obama administration source said on Monday.
The White House and congressional lawmakers have reached a deal to avoid the " fiscal cliff" that would delay harsh spending cuts by two months, Obama administration officials said on Monday.
President Barack Obama called Democratic Senate Majority Leader Harry Reid and House of Representatives Minority Leader Nancy Pelosi, who both signed off on the deal, one source said.
The agreement includes a balance of spending cuts and revenue increases to pay for the delay in the automatic spending cuts that would go into effect without a deal by lawmakers.
Of those spending cuts, 50 percent would come from defense and 50 percent from non-defense areas, the sources said. The White House viewed that as a victory, one source said, and sees it as a model for future deficit reduction pacts.
Vice President Joe Biden traveled to Capitol Hill to discuss the deal.
The Senate might hold a rare New Year's Eve vote on the plan worked out between Biden and Republican Minority Leader Mitch McConnell, but the House of Representatives is unlikely to get around to it until Tuesday at the earliest.
So, technically, the U.S. would go over the cliff when midnight strikes and some $600 billion of tax hikes and spending cuts kick in on Jan. 1.
If Congress fails to pass a deal, the fiscal measures could push the U.S. economy into recession and roil global financial markets. But the damage would not be severe if lawmakers can at least finalize a deal in the coming days.
House approval is unsure as many of the Republicans who control the chamber complain that President Barack Obama has shown little interest in cutting government spending to try to reduce the U.S. budget deficit.
House Republicans are also likely to balk at planned tax hikes on the wealthy that were part of the agreement negotiated by Biden.
As New Year's Day approached, members were thankful that financial markets were closed, giving them a second chance to return on Tuesday to try to blunt the worst effects of the fiscal mess.
Despite the New Year's Eve deadline, there is no major difference whether a law is passed on Monday night, Tuesday or Wednesday.
Legislation can be backdated to January 1, for instance, said law firm K&L Gates partner Mary Burke Baker, who spent decades at the Internal Revenue Service.
"This is sort of like twins and one being born before midnight and one being born after. I think the date that matters is the day president signs the legislation," she said.
House Republicans wished each other "Happy New Year" and left the Capitol building, but their leaders told them to avoid too much New Year partying and be available for a vote on Monday night if needed.
"We were encouraged to stay close to the Capitol and in a good state of mind," said Representative Steven LaTourette of Ohio.
The House was to convene on Tuesday at noon (1700 GMT).
Earlier, President Obama and Senate Minority Leader Mitch McConnell expressed optimism that an agreement to prevent a middle class tax hike was in sight.
Obama said more work needed to be done to avoid other pending issues, but McConnell told the Senate: "Let's get what was agreed on and get moving,"
As Obama addressed the nation, the stock market spiked, with the Dow jumping nearly 100 points, but quickly cut some of those gains. They surged after McConnell's subsequent comments from the Senate floor.