The White House and top Republicans have struck a deal to avert huge New Year tax hikes and spending cuts known as the "fiscal cliff" that had threatened to send the U.S. economy into recession, AFP reports.
The pact would raise taxes on the richest Americans -- those earning over $450,000 a year -- but exempt everyone else, and will put off $109 billion in budget cuts across the government for two months, top congressional aides said, according to the report.
Vice President Joe Biden, who negotiated the deal with Republican Senate Majority leader Mitch McConnell, was on Capitol Hill to sell it to Democratic senators, a White House source added.
Tax hikes and spending cuts were due to come into force on January 1. But as global markets, sure to be rocked by a failure to head off the fiscal cliff, are closed for New Year's day, lawmakers have time to vote the deal into law.
A Senate vote was expected overnight on Monday while the House of Representatives was expected to follow suit on Tuesday after a display of dramatic New Year's Eve brinkmanship.
The deal would mean a return to Bill Clinton-era tax rates for top earners to 39.6 percent, starting at a threshold of annual household earnings of $450,000 and above.
President Barack Obama had originally campaigned for tax hikes to kick in for those making $250,000 and above and his acceptance of a higher threshold has already angered liberals, though still represents a political victory.
The president said it would extend tax credits for clean energy firms and also unemployment insurance for two million people due to expire later Monday.
It was also expected to include an end to a temporary two percent cut to payroll taxes for Social Security retirement savings and Medicare health care programs for seniors and changes to inheritance and investment taxes.
Both sides were Monday already gearing up for the next legislative showdown over the need to lift the government's statutory borrowing limit of $16.4 trillion, which was reached Monday.
The Treasury will now take extraordinary measures to keep the government afloat for an undisclosed period of time until the ceiling is raised. Republicans are already demanding spending cuts in return.
Obama said earlier Monday that a deal to avert the fiscal cliff budget crisis was in sight, but hinted that the proposed pact would not deal with complementary and punishing cuts to government spending also due to take place in the New Year, which he said would have to be dealt with down the line.
Last week, Democratic and Republican leaders traded blame over the fiscal cliff. In the weekly Republican Party radio address, House Speaker John Boehner, the top Republican in Congress, said that that President Barack Obama's proposal to solve the crisis by raising taxes "would still leave red ink as far as the eye can see."
Obama, meanwhile, seemed frustrated that Republicans were not willing to offer him a compromise after, in his eyes, he made major concessions to his opponents.