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Fiscal Cliff

The Fiscal Cliff has been brewing for the past couple months and December 31, 2012 marks the end of another year. Still no deal in sight and the country will go over the cliff at midnight if no deal is reached.

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Crisis averted.  That’s the word from Congress and the President talking about the fiscal cliff.  The bill was signed into law by President Barack Obama last night, but the news is not all good for you the taxpayer.

It’s been interesting to hear the responses to the fiscal cliff over the past couple of days.  Relief has been the main reaction from most Americans.  But, taxes are still going up on everyone to the tune of about a thousand bucks a year.  Still, the situation could have been much worse.

The House gavel on Tuesday night was supposed to signify a major crisis averted, the passage of the fiscal cliff bill.  President Barack Obama autosigned the bill into law last night.  However, the news is not all good for you the taxpayer.

“[The] social security tax is now going up to the statutory rate,” said H & R Block Tax Preparer Jim Geswein.

That statutory rate will cost you about two percent of your income a year.  For the past two years, a payroll tax holiday has dropped the social security rate from 6.2 percent to 4.2 percent.  But that holiday will expire with the Fiscal Cliff Bill of 2013.

“For me that’s [the money is] a cable bill, it’s going out to eat, you know once a week. It’s real money going out the window,” said Geswein.

That real money is going to cost the average American family that earns $50,000 a year, about a thousand bucks a year.  An average of that one thousand dollars equals about $18 a week or $36 each biweekly paycheck.

“Everyone who works, people pay payroll tax up to $113,700 of income so those that make a dollar to 113 they’re going to pay 2 percent more than they paid last year,” said Financial Planner Altair Gobo.

While you will pay more in payroll taxes, many Americans will benefit from the expansion of the Alternative Minimum Tax.  Congress decided to include inflation in the AMT which meant about 29 million new middle class Americans avoid paying extra.  Right now, four million Americans pay the AMT. Those avoiding the AMT will still be able to deduct certain things from their taxes and pay less at the end of the year.

The situation could have been much worse if the Fiscal Cliff bill did not pass.  The average American family faced the prospect of paying $2,200 to $3,500 more each year.

Here is a list of benefits and tax credits that were extended:

-The bill extended unemployment benefits another year avoiding the immediate dropping of benefits for over two million unemployed.

-The $1,000 child tax credit was extended instead of dropping to $500 for each child.

-The $2,500 college tuition credit was extended.

-The daycare expense credit of $3,000 per child was extended.

Even after weeks of wrangling, the fiscal cliff talks are far from over.  While the so-called cliff was averted, the decisions about major spending cuts were put off for another couple of months.  Combine talks about spending cuts along with debt ceiling negotiations which need to happen by February and it could be another ugly few months in DC.

Pres. Obama Fiscal Cliff Presser(CNN) President Barack Obama has signed into law the bill to avert the fiscal cliff.

The new law preserves the Bush-era tax cuts for individuals earning less than $400,000 and couples making less than $450,000 per year, and extends unemployment benefits.

The Senate passed the bill Tuesday morning and the House passed it Tuesday night.

The White House received a copy of the bill late Wednesday afternoon, a senior administration official told CNN. Obama, on vacation with his family in Hawaii, directed the bill be signed by autopen.

Read the bill (pdf).

National & World News
01/02/13

Fiscal cliff deal: 5 things to know

Pres. Obama Fiscal Cliff PresserBy Josh Levs, (CNN) — Now that the House has passed a Senate deal to avert the fiscal cliff, it will become law when President Obama signs it. He has returned to Hawaii to join his family on vacation.

Here are five things to know about the complex bill, and what it does and doesn’t do:

1. No side won

Republicans accepted higher taxes for the wealthiest Americans. Democrats accepted a higher threshold for how much income will face a higher tax rate. President Obama broke a vow to raise tax rates on annual household income over $250,000 and individual income over $200,000. And that’s just for starters.

2. We may have a new definition of ‘wealthiest Americans’

President Obama made raising tax rates on the top 2% of earners in America a centerpiece of his re-election campaign. The 2% figure includes those with income over $250,000. The compromise bill changes that figure. Tax rates will go up only for individuals with income over $400,000 and families earning more than $450,000.

The deal does, however, cap some deductions for individuals making $250,000 and for married couples making $300,000. That allows the president bragging rights to say the deal raises taxes on people at those income levels. But he said just weeks ago that capping deductions at the $250,000 level would not be enough and that tax rates would rise.

3. The deal kicks the can, and three more fiscal cliffs are looming

The deal delays the sequester, a series of automatic cuts in federal spending, for two months. In the meantime, the Senate plan calls for $12 billion in new revenue and another $12 billion in spending cuts. The spending cuts are to be split between defense and nondefense spending.

So the deal adds another battle to this year’s docket of apparently inevitable congressional squabbles over money. The other two: the debt ceiling and a continuing budget resolution.

4. The majority of House Republicans opposed it

Although House Speaker John Boehner supported the bill, the No. 2 Republican in the chamber, Majority Leader Eric Cantor, opposed it, as did most Republicans in the House. So while the Senate vote was an overwhelming 89 to 8, the House vote was 257 to 167. The vast majority of House Democrats supported the bill.

5. Your paycheck is still likely to shrink

The deal does not address an increase in payroll taxes. No legislation to address the fiscal cliff is expected to. Now, the cut on those taxes has expired. Americans earning $30,000 a year will take home $50 less per month. Those earning $113,700 will lose $189.50 a month.

™ & © 2013 Cable News Network, Inc., a Time Warner Company. All rights reserved.

The U. S. House by a vote of  257 to 167  approved a Senate bill that averts the much publicized fiscal cliff.  The votes mark the end of a frenetic few days on Capitol Hill and a month of high drama in Washington. The bill allows tax rates to jump to 39.6 percent on income over $400,000, ending 20 years of lower federal tax rate for the rich. The bill also delays deep across the board spending cuts for two months, cancels pay raises for congress members and avert a hike in milk prices by extending expiring dairy policy.  It also includes a year-long extension of unemployment benefits and business friendly tax provisions.  It would also extend the earned income tax credit, child tax credit and college tax credit for five years.

The deal would also prevent rate cuts to doctors who treat Medicare patients, dividends and capital gains on family income above $450,000 would be taxed at 20 percent, up from the current 15 percent rate.   The bill now moves on to President Barack Obama who has already promised to sign the measure into law.

An analysis by the Congressional Budget Office released Tuesday estimated the bill would add $4 trillion to the deficit over a decade.

“The passage of ‘The American Tax Relief Act of 2012′ (H.R. 8) is an important first step toward a comprehensive bipartisan solution to our nation’s imminent fiscal crisis. Importantly, this legislation provides for permanent lower tax rates for 99% of individuals, families, and small businesses, prevents the alternative minimum tax from wrongly increasing taxes on more than thirty million middle-class taxpayers, better protects family farms and other family owned businesses from the onerous death tax, and locks in lower capital gains and dividend tax rates to bolster economic growth.

At the same time, H.R. 8 generates additional federal revenues from our nation’s wealthiest individuals.  H.R. 8 is not perfect.  While this legislation provides certainty for individuals and businesses alike regarding tax policy, its unfortunate failure to address significant spending reforms, especially at a time when our nation is more than $16 trillion in debt, is deeply regrettable.  The passage of H.R. 8 will hopefully serve as a starting point for substantive and successful bipartisan negotiations addressing out-of-control federal government spending that is clearly unsustainable in the long-term.”

Bob Reilly
Deputy Chief of Staff
U.S. Congressman Todd Platts (PA-19)

(CNN) — If a Senate deal to avert the fiscal cliff becomes law, all but a sliver of the U.S. population will avoid higher tax rates, some key issues will be put off for two months, and all sides in the battle will emerge with a mixed record: winning key points, while ceding ground on others.

The deal, which passed the Democratic-controlled Senate in an overwhelming 89-8 vote in the early hours of Tuesday, would maintain tax cuts for individuals earning less than $400,000 and couples earning less than $450,000. Technically, it would reinstate cuts that expired at midnight.

It would raise tax rates for those over those levels — marking the first time in two decades the rates jump for the wealthiest Americans.

The bill faces an uncertain future in the Republican-controlled House where GOP members gathered Tuesday afternoon.

“The purpose of this meeting is to review what the Senate has passed, discuss potential options, and seek member feedback. No decision on the path forward is expected before another member meeting that will be held later today,” one GOP leadership aide said.

Vice President Joe Biden, meanwhile, met with House Democrats. A longtime senator, he helped broker the Senate deal.

The House faces a deadline. On Thursday at noon, a new Congress will be sworn in. A bill passed by the previous Senate would no longer apply, so both chambers would have to start from scratch.

Some Republican lawmakers, including Reps. Phil Gingrey of Georgia and Tim Huelskamp of Kansas, told CNN they would not support the bill as written.

“It’s taxing, and still taxing, small businessmen and women, and I don’t like that at all,” Gingrey said, referring to some small business owners who would be among those whose tax rates rise.

It’s the opposite argument of some Democrats who oppose the bill. Sen. Tom Harkin, D-Iowa, complained that the deal “makes tax benefits for high-income earners permanent, while tax benefits designed to help those of modest means and the middle class are only extended for five years.”

The bill temporarily extends certain tax breaks, such as the one for college tuition, while making new tax rates permanent.f

While the deal gives President Barack Obama bragging rights for raising taxes on the wealthiest Americans, it also leaves him breaking a promise.

Obama had vowed to raise tax rates for the top-earning 2% of Americans, including those with household income above $250,000, and individuals earning more than $200,000.

“What I’m not going to do is to extend Bush tax cuts for the wealthiest 2% that we can’t afford and, according to economists, will have the least positive impact on our economy,” the president said at a news conference in November, after being asked by CNN why Americans should believe he would not “cave again this time” by allowing those Bush-era tax cuts to be extended.

When asked whether closing loopholes instead of raising rates would be satisfactory, the president responded, “when it comes to the top 2%, what I’m not going to do is to extend further a tax cut for folks who don’t need it, which would cost close to a trillion dollars. And it’s very difficult to see how you make up that trillion dollars, if we’re serious about deficit reduction, just by closing loopholes in deductions. You know, the math tends not to work.”

The deal passed by the Senate would cap itemized deductions for individuals making $250,000 and for married couples making $300,000.

Raising the threshold for higher tax rates to $400,000 shrinks the number of Americans affected. While nearly 2% of filers have adjusted gross incomes over $250,000, only 0.6% have incomes above $500,000, according to the Tax Policy Center.

Still, in a written statement early Tuesday, the president held on to the 98% figure he has so often touted.

The deal “protects 98% of Americans and 97% of small business owners from a middle class tax hike,” he said. “While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay.”

The president also acknowledged, “There’s more work to do to reduce our deficits, and I’m willing to do it. But tonight’s agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans.”

However, many Americans are still likely to see their paychecks shrink somewhat, due to a separate battle over payroll taxes.

Senate vote ‘sends a strong message’

“Glad it’s over,” said Senate Majority Leader Harry Reid, D-Nevada, after the vote on the fiscal cliff deal, just a couple of hours after the East Coast rang in the new year. “We’ll see if the Republicans in the House can become functional instead of dysfunctional.”

A statement from House leadership made no promises.

“Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members — and the American people — have been able to review the legislation,” the statement said.

Sen. John Hoeven, R-North Dakota, was hopeful the House will follow suit.

“The vote was 89 to 8. Bipartisan vote. 89 votes,” he said. “I think it sends a strong message and I think it will be approved by the House.”

What the package proposes

Under the Senate package:

– Taxes would stay the same for most Americans. But they will increase for individuals making more than $400,000 and couples making more than $450,000. For them, it will go from the current 35% to the Clinton-era rate of 39.6%.

– Itemized deductions would be capped for those making $250,000 and for married couples making $300,000.

– Taxes on inherited estates will go up to 40% from 35%.

– Unemployment insurance would be extended for a year for 2 million people.

– The alternative minimum tax — a perennial issue — would be permanently adjusted for inflation.

– Child care, tuition and research and development tax credits would be renewed.

– The “Doc Fix” — reimbursements for doctors who take Medicare patients — will continue, but it won’t be paid for out of the Obama administration’s signature health care law.

– A spike in milk prices will be avoided. Agriculture Secretary Tom Vilsack said milk prices would have doubled to $7 a gallon because a separate agriculture bill had expired.

What’s not addressed

While the package provides some short-term certainty, it leaves a range of big issues unaddressed.

It doesn’t mention the debt ceiling, and temporarily puts off for two months the so-called sequester — a series of automatic cuts in federal spending that would have taken effect Wednesday. It would have reduced the budgets of most agencies and programs by 8% to 10%.

This means that, come late February, Congress will have to tackle both those thorny issues.

“We’re going to have to deal with the sequester, that’s true,” said Sen. Max Baucus, D-Montana, “but look, this is better than nothing.”

Reid said the agreement was a win for average Americans.

“I’ve said all along that our most important priority was to protect the middle class families,” he said. “This legislation does that.”

And maybe a bit more.

According to the U.S. Census Bureau, median household income in 2011 was $50,054, which is well below the tax cut threshold approved by the Senate.

Senate Minority Leader Mitch McConnell, R-Kentucky, praised the effort, but said it shouldn’t have taken so long to get an agreement.

“We don’t think taxes should be going up on anyone but we all knew that if we did nothing they would be going up on everyone today,” he said. “We weren’t going to let that happen.”

If the bill doesn’t pass

There’s a lot at stake.

If the House doesn’t act and the Bush administration’s 2001 and 2003 tax cuts expire, broad tax increases will kick in, as will $110 billion in automatic cuts to domestic and military spending.

The nonpartisan Congressional Budget Office has predicted the combined effect could dampen economic growth by 0.5%, possibly tipping the U.S. economy back into a recession and driving unemployment from its current 7.7% back over 9%.

But if tax-averse House Republicans approve the bill Tuesday — when taxes have technically gone up — they can argue they’ve voted for a tax cut to bring rates back down, even after just a few hours. That could bring some more Republicans on board, one GOP source said.

But Gingrey, speaking Tuesday to CNN, said he does not believe his constituents will see it that way.

He’s concerned they will see it as “just more smoke and mirrors, and Congress pulls these stunts all the time,” Gingrey said. “Putting off the sequester for two months, kicking that can down the road yet again… this bill, as I see it so far, looks like it’s all about raising revenue, but very little, if anything, about cutting spending.”

Concerns persist

The White House budget office noted in September that sequestration was designed during the 2011 standoff over raising the federal debt ceiling as “a mechanism to force Congress to act on further deficit reduction” — a kind of doomsday device that was never meant to be triggered. But Congress failed to substitute other cuts by the end of 2012, forcing the government to wield what the budget office called “a blunt and indiscriminate instrument.”

In its place, the Senate plan would use $12 billion in new tax revenue to replace half the expected deficit reduction from the sequester and leave another $12 billion in spending cuts, split half-and-half between defense and domestic programs.

Conservative lobbyist Grover Norquist, whose Americans for Tax Reform group pushes candidates to sign a pledge never to raise taxes, said the plan “right now, as explained” would preserve most of the Bush tax cuts and wouldn’t violate his group’s pledge.

“Take the 84% of your winnings off the table,” Norquist told CNN. “We spent 12 years getting the Democrats to cede those tax cuts to the American people. Take them off the table. Then we go back and argue about making the tax cuts permanent for everyone.”

But Robert Reich, who served as labor secretary in the Clinton administration, said the $450,000 threshold “means the lion’s share of the burden of deficit reduction falls on the middle class, either in terms of higher taxes down the road or fewer government services.” In addition, he said, the plan does nothing to raise the federal debt ceiling just as the federal government bumps up against its borrowing limit.

And that, Arizona GOP Sen. John McCain told CNN, is likely to be “a whole new field of battle.”

CNN’s Matt Smith, Mike Pearson, Jessica Yellin, Dana Bash, Deirdre Walsh, Lisa Desjardins, Ted Barrett and Ashley Killough contributed to this report.

CNN) — Senate leaders and the White House struck a last-minute deal to avert the feared fiscal cliff Monday night, with Vice President Joe Biden headed to the Capitol Hill to pitch the plan to fellow Democrats.

“Happy New Year,” Biden, who became the Democratic point man in the talks, told reporters. “Did you think we would be here New Year’s Eve?”

But the House of Representatives went home long before midnight, meaning nothing will get through Congress before the combination of tax increases and spending cuts Congress has been scrambling to head off starts to kick in.

A source familiar with the deal told CNN that the Senate proposal would put off the cuts for two months and keep the expiring Bush-era tax cuts for individuals earning less than $400,000 or couples earning less than $450,000. Taxes on inherited estates over $5 million will go up, and that exemption will be indexed for inflation.

Biden had been in negotiations with Senate Minority Leader Mitch McConnell, R-Kentucky, since Sunday afternoon. Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats, agreed to the plan in calls with President Barack Obama, a Democratic source said Monday night.

Economists warn the one-two punch of tax increases and spending cuts could push the U.S. economy back into recession and drive unemployment back over 9% by the end of 2013. Obama had chided lawmakers earlier Monday and warned that battles over spending still loomed, hitting a nerve among several Republicans in the Senate.

“They are close, but they’re not there yet,” Obama said. “And one thing we can count on with respect to this Congress is that if there is even one second left before you have to do what you’re supposed to do, they will use that last second.”

Obama said the plan on the table would prevent a tax increase for the overwhelming majority of Americans, extend the child tax and tuition credits for families, extend credits for clean-energy companies and extend unemployment benefits for 2 million people. But he said lawmakers still have to figure out how to mitigate the impact of the planned cuts.

And he warned that if Republicans think they can get future deficit reduction solely through spending cuts “that will hurt seniors, or hurt students, or hurt middle-class families without asking also quivalent sacrifice from millionaires or companies with a lot of lobbyists … they’ve got another think coming.”

That irked Republican senators who have been grappling for a deal with the Democratic majority in that chamber. Sen. Bob Corker, R-Tennessee, called the president’s comments “very unbecoming of where we are at this moment” and added, “My heart’s still pounding.”

“I know the president has fun heckling Congress,” Corker said. “I think he lost probably numbers of votes with what he did.”

And Sen. John McCain said Obama “sent a message of confrontation to Republicans” with his remarks.

“People have to wonder whether the president really wants issue resolved, or is it in his short-term political benefit for us to go over the cliff,” said McCain, R-Arizona.

A source familiar with the negotiations said the proposals under discussion would generate $600 billion by ending the Bush-era tax cuts on individuals with incomes above $400,000 and families over $450,000. The top tax rate would return to 39.6% from its current 35%.

The deal would also increase the estate tax to 40% from the current 35% level and cap itemized deductions for individuals with incomes above $250,000 and household income over $300,000, the source said.

In the House, GOP sources said there’s little practical difference in settling the issue Monday night versus Tuesday. But if House Republicans approve the bill on Tuesday — when taxes have technically gone up — they can argue they’ve voted for a tax cut to bring rates back down, even after just a few hours, GOP sources said. That could bring some more Republicans on board, one source said.

Earlier, a GOP source told CNN that the sticking point in talks was $24 billion in spending cuts being sought by Republicans in place of the $110 billion in automatic spending now set to take effect.

As Monday’s deadline drew nigh, federal agencies were preparing for the possibility of furloughing workers. At the Pentagon, a Defense Department official said as many as 800,000 civilian employees could be forced to take unpaid days off as the armed services face an expected $62 billion in cuts in 2013 — about 12% of its budget.

Those workers perform support tasks across the department, from maintaining aircraft and weapons systems to processing military payrolls and counseling families. The Pentagon believes it can operate for at least two months before any furloughs are necessary, but has to warn its civilian workforce that furloughs could be coming, the official said.

The White House budget office noted in September that sequestration was designed in 2011 as “a mechanism to force Congress to act on further deficit reduction” — a kind of doomsday device that was never meant to be triggered. But Congress failed to substitute other cuts by the end of 2012, forcing the government to wield what the budget office called “a blunt and indiscriminate instrument.”

Despite Obama’s backing, one leading Senate Democrat warned a deal could run into trouble — not only from House Republicans who have long opposed any tax increase, but also from liberals in the Senate who oppose allowing more high-income households to escape a tax increase.

“No deal is better than a bad deal, and this looks like a very bad deal the way this is shaping up,” Sen. Tom Harkin, D-Iowa, said.

Conservative lobbyist Grover Norquist, whose Americans for Tax Reform pushes candidates to sign a pledge never to raise taxes, said the plan “right now, as explained” would preserve most of the Bush tax cuts and wouldn’t violate his group’s pledge.

“Take the 84% of your winnings off the table,” Norquist told CNN. “We spent 12 years getting the Democrats to cede those tax cuts to the American people. Take them off the table. Then we go back and argue about making the tax cuts permanent for everyone.”

But Robert Reich, who served as labor secretary in the Clinton administration, said the $450,000 threshold “means the lion’s share of the burden of deficit reduction falls on the middle class, either in terms of higher taxes down the road or fewer government services.” In addition, he said, the plan does nothing to raise the federal debt ceiling just as the federal government bumps up against its borrowing limit.

And that, McCain told CNN, is likely to be “a whole new field of battle.”

“We just added 2.1 trillion in the last increase in the debt ceiling, and spending continues to go up,” McCain said. “I think there’s going to be a pretty big showdown the next time around when we go to the debt limit.”

CNN’s Mike Pearson, Jessica Yellin, Dana Bash, Deirdre Walsh, Lisa Desjardins, Ted Barrett and Ashley Killough contributed to this report.

By Matt Smith

(CNN) — The feared fiscal cliff was at hand Monday night, with nothing expected to pass Congress before a combination of tax increases and spending cuts starts to kick in at midnight.
A deal to avert that combination, which economists warn could push the U.S. economy back into recession, was “within sight” on Monday afternoon, President Barack Obama said. And in the Senate, Minority Leader Mitch McConnell told members that they were “very, very close” to a deal, having worked out an agreement on taxes.
Sen. Kay Bailey Hutchison, R-Texas, said senators “are hoping to vote tonight” on some package to avert the cliff. But the House of Representatives adjourned without voting on anything Monday — and Obama’s remarks earlier Monday, in which he chided Congress and warned that battles over spending still loomed, hit a nerve among several Republicans in the Senate.
“They are close, but they’re not there yet,” Obama said. “And one thing we can count on with respect to this Congress is that if there is even one second left before you have to do what you’re supposed to do, they will use that last second.”
Obama said the deal now on the table would prevent a tax increase for the overwhelming majority of Americans, extend the child tax and tuition credits for families as well as those for clean-energy companies, and extend unemployment benefits for 2 million people. But even then, he said lawmakers still have to figure out how to mitigate the possible damage from sharp spending cuts that are scheduled to start biting January 2, when the federal government reopens after the New Year’s holiday.
And he warned that if Republicans think they can get future deficit reduction solely through spending cuts “that will hurt seniors, or hurt students, or hurt middle-class families without asking also equivalent sacrifice from millionaires or companies with a lot of lobbyists … they’ve got another think coming.”

By Michael Pearson, (CNN) — An agreement to avert the “fiscal cliff” of automatic tax increases and spending cuts appears to be “within sight,” President Barack Obama said Monday.

The deal would prevent a tax increase for the overwhelming majority of Americans, extend the child tax and tuition credits for families as well as those for clean-energy companies and extend unemployment benefits for two million people, Obama said.

“There are still issues left to resolve, but we are hopeful Congress can get it done,” Obama said.

Nevertheless, he did not sound hopeful a deal was imminent, saying he expected to remain at the White House for New Year’s Eve while lawmakers used up every last second available to them.

“Keep the pressure on over the next 12 hours or so,” he urged supporters. “Let’s see if we can get this thing done.”

A GOP source told CNN negotiators are “very close” to a deal. The sticking point is $24 billion in spending cuts being sought by Republicans in place of deeper cuts that would automatically take effect at midnight, according to the source.

“It’s like looking under the cushions at this point,” the source said. “If we can’t find that at this point, we should pack this place up.”

A congressional Democratic source agreed that spending cuts are the main hold up now.

But House GOP sources told CNN that they think it increasingly unlikely they’ll vote on the proposal before Tuesday.

There’s little practical difference in settling the issue Monday night versus Tuesday, the sources said. One exception: if House Republicans approve the bill on Tuesday — when taxes have technically gone up — they can argue they’ve voted for a tax cut to bring rates back down, even after just a few hours, GOP sources said.

That could bring some more Republicans on board, one source said.

“I wouldn’t overestimate it, but a handful may be the difference we need,” the source said.

The proposal under discussion Monday afternoon called for rolling back tax rates on the highest-income earners to Clinton-era levels, increasing the estate tax rate, extending unemployment benefits and potentially putting off the $110 billion in automatic spending cuts called for in the legislation that created the cliff, according to sources close to the process.

A source familiar with the negotiations said the proposal under discussion would generate $600 billion in revenues by ending the Bush-era tax cuts on individuals with incomes above $400,000 and families over $450,000. Their tax rate would be 39.6%, the same as it was in 2000 during President Bill Clinton’s presidency. The top income rate is currently 35%.

The deal would also increase the estate tax to 40% from the current 35% level and cap itemized deductions for individuals with incomes above $250,000 and household income over $300,000, the source said.

In addition to the tax proposals, also under discussion is a proposal to delay the $110 billion in automatic cuts in domestic and military spending due over the next nine months, a draconian approach called sequester that was created by Congress to address the impact of high deficits and debt on the U.S. economy.

Republicans want a three-month delay while Democrats seek to forestall the cuts by one year, a Democratic source told CNN. Another Democratic source said the proposed three-month delay “can’t pass.”

Despite Obama’s backing, one leading Senate Democrat warned the deal could run into trouble — not only from House Republicans who have long opposed any tax increase, but also from liberals in the Senate who oppose allowing more high-income households to escape a tax increase.

“No deal is better than a bad deal, and this looks like a very bad deal the way this is shaping up,” Sen. Tom Harkin, D-Iowa, said.

If nothing gets done before Monday at midnight, broad taxes hikes will kick in as the Bush-era cuts expire and the deep spending cuts will begin to take hold.

The nonpartisan Congressional Budget Office has predicted the combined effect could dampen economic growth by 0.5%, possibly tipping the U.S. economy into a recession and driving unemployment from its current 7.7% back over 9%.

CNN’s Matt Smith, Jessica Yellin, Dana Bash, Deirdre Walsh, Lisa Desjardins, Ted Barrett and Ashley Killough contributed to this report.

™ & © 2012 Cable News Network, Inc., a Time Warner Company. All rights reserved.

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