WASHINGTON (Reuters) - Washington's last-minute scramble to step back from a recession-inducing "fiscal cliff" shifted to the Republican-controlled House of Representatives on Tuesday after the Senate approved a bipartisan deal to avoid steep tax hikes and spending cuts.
In a rare late-night show of unity, the Senate voted 89 to 8 to raise some taxes on the wealthy while keeping income taxes low on more moderate earners.
The bill's prospects were less certain in the House, where a vote had not yet been scheduled.
Republicans, unhappy that the bill contained over $600 billion in tax increases but only around $12 billion in spending cuts, said they may change it more to their liking and send it back to the Senate. Party leaders planned to take the temperature of rank-and-file lawmakers over the afternoon before deciding on a course of action.
"My recommendation would be not to take a package put together by a bunch of sleep-deprived octogenarians on New Year's Eve," said Representative Steve LaTourette, a moderate Republican from Ohio who is a close ally of House Speaker John Boehner.
Republicans could face a backlash if they scuttle the deal. Income tax rates technically rose back to 1990s levels for all Americans at midnight, and public opinion polls show Republicans would shoulder the blame if Congress fails to act.
Many conservative Republicans have rejected tax increases on any Americans, no matter how wealthy. Some liberal Democrats were also upset with the complex deal, which they thought gave away too much.
Lingering uncertainty over U.S. tax and spending policy has unnerved investors and depressed business activity for months, and lawmakers had hoped to reach a deal before Tuesday, when a broad range of automatic tax increases and spending cuts would begin to punch a $600 billion hole in the economy.
Financial markets have avoided a steep plunge on the assumption that Washington would ultimately avoid pushing the country off the fiscal cliff into a recession.
With financial markets closed for the New Year's Day holiday, lawmakers have one more day to close the deal.
"My district cannot afford to wait a few days and have the stock market go down 300 points tomorrow if we don't get together and do something," Representative Steve Cohen, a Democrat from Tennessee, said on the House floor.
LATE-NIGHT DRAMA
The bill passed by the Senate at around 2 a.m. would raise income taxes on families earning more than $450,000 per year and limit the amount of deductions they can take to lower their tax bill.
Low temporary rates that have been in place for less affluent taxpayers for the past decade would be made permanent, along with a range of targeted tax breaks put in place by President Barack Obama in the depths of the 2009 recession.
However, workers would see up to $2,000 more taken out of their paychecks annually as a temporary payroll tax cut was set to expire.
The bill would also delay an across-the-board spending cut in domestic and military programs for two months, and extend jobless benefits for 2 million long-term unemployed people who otherwise would see them run out.
The bill would raise taxes on less than 1 percent of the population, according to the nonpartisan Tax Policy Center.
However, that may be too much for conservative Republicans in the House, who last month scuttled an effort by Boehner to limit tax increases to those who earn more than $1 million. He has faced insurrections from his conservative wing in other budget showdowns over the past two years.
Republicans had hoped to include significant spending cuts in the deal to narrow trillion-dollar budget deficits. Conservatives were already looking forward to the next battle over the debt ceiling, in late February, to extract deficit reduction measures from the Democratic president.
The White House has floated $600 billion worth of spending cuts in earlier negotiations, and Obama said he would be willing to tackle deficit reduction over the coming months.
"There's more work to do to reduce our deficits, and I'm willing to do it," he said in a statement urging the House to pass the current bill.
Vice President Joe Biden, who was instrumental in pushing through the Senate measure, addressed a closed-door meeting of House Democrats seeking their support to pass the bill.
The conservative Club for Growth urged a "no" vote on the Senate measure, and warned that Republicans who support it could face a primary challenge when they run for re-election in two years.
Liberal groups also have urged Democrats to reject the deal.
Richard Trumka, head of the AFL-CIO labor union, wrote on Twitter that the deal does not raise taxes enough on the wealthy and "sets the stage for more hostage taking" by Republicans in future budget confrontations.
Obama had originally sought to raise taxes on households making more than $250,000. Even with the higher threshold, the White House said is getting 85 percent of the revenue it wanted.
Republican Representative Tom Cole said his House colleagues should pass the Senate bill rather than try to change it.
"We ought to take this deal right now, and we'll live to fight another day," Cole said on MSNBC.
(Additional reporting by Jeff Mason and Mark Felsenthal, Writing by Andy Sullivan; Editing by Alistair Bell)
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