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On the first morning of 2013, it's MORNING EDITION from NPR News. I'm Steve Inskeep.
DAVID GREENE, HOST:
And I'm David Greene.
The party went until the morning hours here in Washington. We're talking about the gathering on Capitol Hill. Senators were voting around 2:00 a.m. Eastern Time.
INSKEEP: They approved an agreement to alter the higher taxes and spending cuts that become law today. The House would have to agree to these changes to become reality. And after the plan passed the Senate overwhelmingly, 89-8, the House resumes business today.
GREENE: The agreement has the backing of the White House. It would shield all but the very wealthiest Americans from automatic tax increases. Across-the-board spending cuts would also be postponed for at least two months.
INSKEEP: Here's NPR's Scott Horsley.
SCOTT HORSLEY, BYLINE: The tentative deal was hammered out with numerous telephone calls between Vice President Joe Biden and Senate Republican Leader Mitch McConnell. The two men have years of negotiating history in the Senate. By midday yesterday, they'd come to terms on the most contentious issue, agreeing to extend Bush-era tax cuts for the vast majority of Americans.
At the White House, President Obama surrounded himself with middle income supporters, calling on lawmakers to finish the job.
PRESIDENT BARACK OBAMA: For now our most immediate priority is to stop taxes going up for middle-class families, starting tomorrow. I think that is a modest goal that we can accomplish. Democrats and Republicans in Congress have to get this done, but they're not there yet.
HORSLEY: Even as he tried to win over reluctant Republicans, Mr. Obama also had to contend with defecting Democrats. Iowa Senator Tom Harkin says if the Biden/McConnell plan is meant to be the rescue package, he'd rather take his chances with the fiscal cliff.
SENATOR TOM HARKIN: As I've said before, no deal is better than a bad deal, and this looks like a very bad deal the way this is shaping up.
HORSLEY: Harkin complains the White House went too far in accommodating Republicans, making Bush-era tax cuts permanent not just for the middle class, but for households making up to $450,000. That's a windfall for the wealthy, who Mr. Obama has long said need to pay more in taxes. Even the president's preferred cut-off of $250,000 is more than generous enough for the Iowa Democrat.
HARKIN: If you make $250,000 a year, you're not middle-class; you're in the top two percent of income earners in America. Have we forgotten that the average income earners in America are making 25, 30, 40, 50, 60 thousand dollars a year? That's the real middle-class in America.
HORSLEY: The tentative deal, which also includes higher estate, dividend and capital gains taxes, would raise an estimated $620 billion in new revenue over the next decade. That's less revenue than the president wanted and less than he could collect automatically from wealthy households by simply going over the cliff.
In exchange, the White House did win a one-year extension of unemployment benefits and a five-year extension of several tax credits that benefit the working class. Mr. Obama acknowledged this deal falls short of the grand deficit-cutting bargain he was trying to negotiate with House Speaker John Boehner. But he says he's willing to tackle the problem one step at a time.
OBAMA: We're going to still have more work to do. We still have deficits that have to be dealt with. We're still going to have to think about how we put our economy on a long-term trajectory of growth.
HORSLEY: In addition to a deal on taxes, negotiators struggled with how to avoid big spending cuts also set to take effect this week. Neither party likes those cuts which hit nearly every area of government, except health care. But they disagreed on how to replace them. At one point yesterday, McConnell argued for merely pocketing the tax deal and saving the spending discussion for another day.
SENATOR MITCH MCCONNELL: Let's take what's been agreed to and get moving. We all want to protect taxpayers and we can get it done now.
HORSLEY: Instead, McConnell and the White House agreed to postpone the spending cuts for a mere two months. That means Congress could be wrestling with the cuts again right around the time the government is bumping up against the debt ceiling. Mr. Obama insists he won't negotiate with Republicans over raising the debt limit. But critics complain his concession on taxes will only embolden the GOP for a showdown that could do far more lasting damage to the economy than the fiscal cliff.
While Republicans say any increase in the debt ceiling must be matched by equivalent spending cuts, the president says he'll continue to push for more tax revenue.
OBAMA: If we're going to be serious about deficit reduction and debt reduction, then it's going to have to be a matter of shared sacrifice - at least as long as I'm president, and I'm going to be president for the next four years...
HORSLEY: As 2013 begins, it appears those could be four more years of fiscal brinksmanship. Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.