The deal also delays for two months part of the $109 billion in spending cuts.
Following an agreement negotiated by U.S. Vice President Joe Biden and Senate Minority Leader Mitch McConnell, the Senate was moving towards a vote on the deal either late night or Tuesday noon. This is because Senate, wherein the Republicans enjoy a majority, had been adjourned till Tuesday noon (IST).
As a result the U.S. was all set to hit midnight, at least for a day. The fiscal cliff would have meant automatic tax increases for all Americans and deep cuts in military and discretionary spending.
The Senate Majority Leader, Harry Reid, said the Senate will vote on a fiscal cliff deal tonight. Emerging from a party caucus meeting, Mr. Reid said Senators were waiting for the final score from the bi-partisan Congressional Budget Office (CBO), which would prevent tax hikes on most of the Americans and put off for two months spending cuts scheduled by the sequester.
The Senate Minority Leader Mitch McConnell, said that both sides were "very, very close" to an agreement and had, in fact, made a deal allowing taxes to rise on individual income over $400,000 per year, and household income of $450,000 per year.
"I can report that we've reached an agreement on all of the tax issues," he told reporters emerging from one of the negotiating sessions.
"It would extend our tuition tax credit that's helped millions of families pay for college. It would extend tax credits for clean energy companies that are creating jobs and reducing our dependence on foreign oil. It would extend unemployment insurance to 2 million Americans who are out there still actively looking for a job," he said.
Congressional Budget Office, in a report, had predicted that fiscal cliff could dampen economic growth by 0. 5 per cent. That could tip the U.S. economy into a recession and driving unemployment from its current 7.7 per cent back over nine per cent, the non-partisan CBO estimated.
President Obama said the potential agreement that's being talked about would not only make sure the taxes don't go up on middle-class families, it also would extend tax credits for families with children.