Senate Republican Leader Mitch McConnell (R., Ky.) and Vice President Joe Biden, include:
Permanently raising tax rates on income over $400,000 for individuals and $450,000 for households.
Raising taxes on capital gains and dividends for those households, from the current 15% to Clinton-era levels of roughly 20%.
Limiting the number of personal exemptions as well as the value of itemized deductions, two restrictions that would kick in at $250,000 for individuals and $300,000 for couples. Those limits were abolished as part of the 2001 Bush-era tax revamp.
Setting the estate tax rate at 40% on estates over $5 million, up from the 35% that applies now to estates over $5.12 million. That isn’t as high as the 45% rate Mr. Obama sought with a $3.5 million exemption.
The emerging agreement met with opposition from Senate Democrats who believe the administration gave away too much in compromising on their party’s signature commitment to raise taxes on income over $250,000. Mr. Biden was invited to the Capitol Monday to sell his own party caucus on the deal.
The Biden-McConnell deal is a classic compromise that included something for everyone to love—and hate. The key question is whether the positive components and the pressure of the Jan. 1 deadline are enough to neutralize the parts that raise objections. If not, attacks from the left and right could combine to topple the deal.
For Republicans, the bill includes the bitter medicine of the first income-tax rate increase since 1993, a violation of the anti-tax orthodoxy that has defined their party. On the other hand, it would codify the Bush-era lower income-tax rates for most Americans as permanent law, ending the recurring battles over how long they will endure.
For Democrats, the bill’s tax increase makes good on their party’s marquee promise in the 2012 campaign to raise taxes on upper-income Americans and not the middle class. But many Democrats, especially liberals, were infuriated that the bill set the income threshold as high as $450,000.
Mr. Obama, speaking Monday afternoon, said negotiators had made “progress” over the past few days toward a deal. “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 Congress can get it done.”
One sticking point has been automatic spending cuts, known as the sequester, which are set to take effect in coming days.
Republicans had insisted the cuts of $24 billion be offset with savings in other areas. The White House wants some of the offset to be in the form of tax increases, not just other spending cuts.
Mr. Reid has a backup proposal, which tackles only a few items on the legislative agenda, including extending current tax rates for income up to $250,000 for couples filing jointly.
It calls for a permanent fix to the alternative minimum tax, a one-year extension of unemployment insurance benefits, and a five-year extension of other tax breaks. Among them are tax credits for families of modest means, including one for college tuition, and an expanded earned income tax credit, which provides cash to working poor families who don’t earn enough to pay income taxes. It also would block a scheduled cut in Medicare payments to doctors for one year.
The deal taking shape also would include tax breaks adopted by the Senate Finance Committee earlier this year, aides with knowledge of the talks said. Among them was a one-year extension of the tax credit, with slight modifications that would allow wind-farm developers to claim the credit for projects that begin construction by Jan. 1, 2014.