The moon rises behind the U.S. Capitol Dome in Washington as Congress works into the late evening, Sunday, Dec. 30, 2012 to resolve the stalemate over the pending "fiscal cliff." (AP Photo/J. David Ake)
The moon rises behind the U.S. Capitol Dome in Washington as Congress works into the late evening, Sunday, Dec. 30, 2012 to resolve the stalemate over the pending "fiscal cliff." (AP Photo/J. David Ake)
Senate Minority Leader Mitch McConnell, R-Ky., followed by Sen. Pat Roberts, R-Kan., second from right, leaves the Senate chamber to meet with fellow Republicans in a closed-door session as the "fiscal cliff" negotiations continue at the Capitol in Washington, Sunday, Dec. 30, 2012. Leaders in the Senate and the House are under pressure to find a legislative path to head off the automatic tax hikes and spending cuts set to take effect Jan. 1, 2013. (AP Photo/J. Scott Applewhite)
Senate Majority Leader Harry Reid, D-Nev., walks to a closed-door meeting with fellow Democrats as he and Senate Minority Leader Mitch McConnell, R-Ky., work to negotiate a legislative path to avoid the so-called "fiscal cliff," at the Capitol in Washington, Sunday, Dec. 30, 2012. Senate and House leaders are rushing to assemble a last-ditch agreement to stave off middle-class tax increases and possibly delay steep spending cuts in an urgent attempt to find common ground after weeks of gridlock. (AP Photo/J. Scott Applewhite)
Sen. Charles Schumer, D-N.Y., third ranking in the Senate Democratic leadership, speaks on his cell phone following a closed-door caucus at the Capitol in Washington, Sunday, Dec. 30, 2012 to discuss how to avoid the "fiscal cliff" of automatic tax increases and deep spending cuts that could kick in Jan. 1. (AP Photo/J. Scott Applewhite)
WASHINGTON (AP) ? The contours of a deal to avert the 'fiscal cliff' emerged Monday, with Democrats and Republicans agreeing to raise tax rates on family income over $450,000 a year, increase the estate tax rate and extend unemployment benefits for one year, officials familiar with the negotiations said.
But with a midnight deadline rapidly approaching, both sides were at an impasse over whether to put off automatic, across-the-board spending cuts set to take effect on Jan. 1, and if so, how to pay for that. Democrats want to put off the cuts for one year and offset the so-called sequester with unspecified revenue.
Officials emphasized that negotiations were continuing and the emerging deal was not yet final. President Barack Obama was to speak about the status of the negotiations from the White House Monday afternoon.
The proposal in the works would raise the tax rates on family income over $450,000 from 35 percent to 39.6 percent, the same level as under former President Bill Clinton. Also, estates would be taxed at 40 percent after the first $5 million for an individual and $10 million for a couple, up from 35 percent to 40 percent.
Unemployment benefits would be extended for one year. Without the extension, 2 million people would lose benefits beginning in early January.
A Republican official familiar with the plans confirmed the details described to The Associated Press.
The officials requested anonymity in order to discuss the internal negotiations.
Unless an agreement is reached and approved by Congress by the start of New Year's Day, more than $500 billion in 2013 tax increases will begin to take effect and $109 billion will be carved from defense and domestic programs
Though the tax hikes and budget cuts would be felt gradually, economists warn that if allowed to fully take hold, their combined impact ? the so-called fiscal cliff ? would rekindle a recession.
Urgent talks were continuing Monday afternoon between the White House and congressional Republicans, with longtime negotiating partners Vice President Joe Biden and Senate Republican leader Mitch McConnell at the helm. Underscoring the flurry of activity, another GOP aide said the two men had conversations at 12:45 a.m. and 6:30 a.m. Monday.
An agreement on the proposed deal would also shield Medicare doctors from a 27 percent cut in fees and extend tax credits for research and development, as well as renewable energy.
The deal would also extend for five years a series of tax credits meant to lessen the financial burden on poorer and middle-class families, including one credit that helps people pay for college.
The deal would achieve about $600 billion in new revenue, the officials said.
Despite the movement, Senate Majority Leader Harry Reid warned that time was running out to finalize an agreement.
"Americans are still threatened with a tax hike in just a few hours," said Reid, D-Nev., as the Senate began an unusual New Year's Eve session.
Liberal Sen. Tom Harkin, D-Iowa, took to the Senate floor after Reid to warn Democratic bargainers against lowering levies on large inherited estates and raising the income threshold at which higher tax rates would kick in.
"No deal is better than a bad deal. And this look like a very bad deal the way this is shaping up," said Harkin.
Letting tax rates rise for couples with incomes of $450,000 a year is a concessions for Obama, who campaigned for re-election on a pledge to set the levels at $200,000 for individuals and $250,000 for couples. It also marked a significant concession by Republican leaders who pledged to continue the George W. Bush-era tax cuts for all income earners. .
The hope of the White House and lawmakers was to seal an agreement, enact it and send it to Obama for his signature before taxpayers felt the impact of higher income taxes or federal agencies began issuing furloughs or taking other steps required by spending cuts.
Regardless of the fate of the negotiations, it appeared all workers would experience a cut in their take-home pay with the expiration of a two-year cut in payroll taxes.
"This whole thing is a national embarrassment," Sen. Bob Corker, R-Tenn., said Monday on MSNBC, adding that any solution Congress would swallow at this late stage would be inconsequential. "We still haven't moved any closer to solving our nation's problems."
In a move that was sure to irritate Republicans, Reid was planning ? absent a deal ? to force a Senate vote Monday on Obama's campaign-season proposal to continue expiring tax cuts for all but those with income exceeding $200,000 for individuals and $250,000 for couples.
In one sign of movement on Sunday, Republicans dropped a demand to slow the growth of Social Security and other benefits by changing how those payments are increased each year to allow for inflation.
Obama had offered to include that change, despite opposition by many Democrats, as part of earlier, failed bargaining with House Speaker John Boehner, R-Ohio, over a larger deficit reduction agreement. But Democrats said they would never include the new inflation formula in the smaller deal now being sought to forestall wide-ranging tax boosts and budget cuts, and Republicans relented.
"It's just acknowledging the reality," Sen. Susan Collins, R-Maine, said of the GOP decision to drop the idea.
As the New Year's Eve deadline rapidly approached, Democrats and Republicans found themselves at odds over a host of issues, including taxing large inherited estates. Republicans wanted the tax left at its current 35 percent, with the first $5.1 million excluded, while Democrats wanted the rate increased to 45 percent with a smaller exclusion.
The two sides were also apart on how to keep the alternative minimum tax from raising the tax bills of nearly 30 million middle-income families and how to extend tax breaks for research by business and other activities.
Republicans were insisting that budget cuts be found to pay for some of the spending proposals Democrats were pushing.
These included proposals to erase scheduled defense and domestic cuts exceeding $200 billion over the next two years and to extend unemployment benefits. Republicans complained that in effect, Democrats would pay for that spending with the tax boosts on the wealthy.
"We can't use tax increases on anyone to pay for more spending," said Sen. Kay Bailey Hutchison, R-Texas.
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Eds: Associated Press writers David Espo, Andrew Taylor, Alan Fram and Josh Lederman contributed to this report.
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Editor?s note:?Derek?Andersen?is the founder of?Startup Grind, a 35-city event series hosted in 15-countries that educates, inspires, and connects entrepreneurs.?He also founded Commonred (acquired by Income.com) and is?ex-Electronic Arts. There are virtually no companies in Silicon Valley that exit north of $100MM or create a billion dollar business, that?don?t raise Venture Capital funding. Charles and Kai Huang, the founders of Red Octane are the exception having done both. They went on to sell more than 30MM units of Guitar Hero becoming one of the top videogame franchises of all time. Recently I sat down with Charles at Startup Grind and heard this fascinating story. In 1999 Charles and his brother Kai founded Red Octane. Launching six months before Netflix, the goal was to be the Netflix of videogames. But six months after they launched the dot com bubble burst and so did their business. As funding completely dried up, the capital intensive rental business became unfundable. Of that time Charles said, ?It looked like the whole valley was just going to die and go away. So that?s when we scrambled and looked at video game hardware, and eventually videogame software. That was the beginning of what was many lives of Red Octane.? Startup Survival. 2 Weeks Of Cash. They were gamers and were playing a lot of Playstation 1 games, especially the pirated stuff out of Japan. Dance Dance Revolution was just making it?s way to the States so they stated selling dance pads. ?We realized the dance pads that we were buying and reselling were garbage, because they were breaking down and we thought we could make better dance pads than this,? Charles said. ?I literally packed my bags, went to China, visited a few of these factories that made dance pads, figured out how they made them and took a bunch of suggestions that users had given us and incorporated them into new designs and so we started coming out with our own dance pads and believe it or not, that kept the company afloat (from 2001 to 2003).? Everything was sold online due to lack of cash. ?We had to start that way because we couldn’t afford to sell to stores due to cash flow. The way it works is you sell to Gamestop and they don’t pay you for 60 to 90 days. We didn’t have the money to do that, so we had to sell everything
