The U.S. is expected to go over the "fiscal cliff" at midnight Monday, but President Barack Obama and Senate GOP leader Mitch McConnell said an agreement to prevent a middle class tax hike was in sight.
Obama said more work needed to be done to avoid other pending issues, but McConnell told the Senate: "Let's get what was agreed on and get moving,"
As Obama addressed the nation, the stock market spiked, with the Dow jumping nearly 100 points, but quickly cut some of those gains. They surged after McConnell's subsequent comments from the Senate floor, (Read More: Stocks End Up 1% on 'Cliff' Progress)
The House was not expected to vote on any measure Monday night, so the U.S. will technically be going over the "fiscal cliff" at midnight, sources told CNBC. The House GOP caucus was scheduled to meet late Monday afternoon, but focusing on relief from Hurricane Sandy.
The emerging deal with the Senate would raise tax rates on family income over $450,000 a year, increase the estate tax rate and extend unemployment benefits for one year.
The parties were at an impasse over whether to put off the automatic, across-the-board spending cuts set to begin taking effect at midnight, and if so, how to pay for that. One official said talks were focused on a two-month delay in the across-the-board cuts but negotiators had yet to agree on about $24 billion in savings from elsewhere in the budget.
"Today it appears that an agreement to prevent this middle class tax hike is in sight," Obama said in an early afternoon appearance from the White House, where he stood in front of cheering supporters.
"Over the next 12 hours, let's see if we can get this done," Obama said.
Obama expressed regret that the work of the administration and lawmakers won't produce a "grand bargain" on tax-and-spend issues, but said that "with this Congress, it couldn't happen at that time."
Before he spoke, details of the emerging deal emerged. It would raise $600 billion in revenue over the next 10 years by increasing tax rates for individuals making more than $400,000 and households making above $450,000 annually, officials familiar with the talks said.
The deal would also delay a series of spending cuts known as the "sequester," though a sticking point remains on how long that delay would last.
McConnell said action on the sequester could continue in coming months. "Let's pass the tax relief portion now, let's take what's been agreed to and get moving," McConnell said.
Other details included increasing the estate tax rate, extending unemployment benefits for one year, officials familiar with the negotiations said. The officials, speaking on condition of anonymity, said an agreement would 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 also would 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.
Obama said whatever last-minute fixes are necessary, they must come from a blend of tax revenue and constrained spending, not just budget cuts.
Late Monday morning, Senate Majority Leader Harry Reid opened the Senate by saying the negotiations were continuing and differences remained before legislation could be brought to the floor. "We really are running out of time," he warned. "Americans are threatened with a tax hike in just a few hours."
Senate GOP Whip Jon Kyl reported "a lot of progress" on the talks involving Vice President Joe Biden and McConnell.
"The discussions are going very, very well," Republican Sen. Bob Corker told CNBC's "Squawk Box." "I do think there's going to be a resolve to this. ..."It's almost irrelevant when it happens - it's going to happen, and it's probably going to happen today."
He said the agreement probably would not include significant moves on deficit reduction.
The Biden-McConnell negotiations appeared to offer the last hope for avoiding the fiscal cliff of $600 billion in tax increases and spending cuts that economists fear could throw the country back into recession.
After an agreement in the Senate, the GOP-controlled House would have to approve the deal. Although the deadline is midnight, the House could still meet until the newly elected Congress convenes at noon EST on Thursday.
A jolt from the financial markets could prod the parties, as it has occasionally in the past.
"I believe investors will show their displeasure" at the lack of progress in Washington, said Mohannad Aama, managing director at Beam Capital Management, an investment advisory firm in New York.
Democratic and Republican leaders in the Senate had hoped to clear the way for swift action on Sunday. But with the two sides still at loggerheads in talks, Reid postponed any possible votes and the Senate adjourned until Monday.
A main sticking point between Republicans and Democrats has been whether to extend existing tax rates for everyone, as Republicans want, or just for those earning below $250,000 to $400,000, as Democrats have proposed.
Sources told NBC News Democrats offered to extend tax cuts for families making up to $450,000 a year and individuals making up to $400,000. Obama originally wanted the tax cuts to be extended only for families making up to $250,000 a year.
Senior Republicans told NBC the GOP was looking for a figure at about $550,000, down from House Speaker John Boehner's $1 million and retaining current estate tax rates.
Corker told CNBC the income threshold would probably wind up around $400,000 to $500,000 a year. Also at issue were Republican demands for larger cuts in spending than those offered by Obama.
Hopes for a "grand bargain" of deficit-reduction measures vanished weeks ago as talks stalled.While Congress has the capacity to move swiftly when motivated, the leaders of the House and Senate left themselves little time for what could be a complicated day of procedural maneuvering in the event of an agreement.
Boehner insisted that the Senate act first.
And the cliff wasn't the only business on the House agenda. The top leaders in both parties on the House and Senate Agriculture committees have agreed to a one-year extension of the expiring farm law to head off a possible doubling of retail milk prices to $7 or more a gallon in early 2013.
Senate Agriculture Committee Chairman Debbie Stabenow, D-Mich., indicated the House could vote on the bill soon, though House leaders have not yet agreed to put the bill on the floor. (Read More: Leaders Agree to on Deal Stop Spike in Milk Prices)
Also, relief for victims of Superstorm Sandy is waiting in line in the House, though the House could still consider a Senate bill on assistance for the storm until Jan. 2, the last day of the Congress that was elected in November 2010.
Expiring along with low tax rates at midnight Monday were a raft of other tax measures effecting tens of millions of Americans.
A payroll tax holiday Americans have enjoyed for two years looks like the most certain casualty as neither Republicans or Democrats have shown much interest in continuing it, in part because the tax funds the Social Security retirement program. (Read More: Here's How a 'Cliff' Dive Will Affect Your Taxes)
The current 4.2 percent payroll tax rate paid by about 160 million workers will revert to the previous 6.2 percent rate after Dec. 31, and will be the most immediate hit to taxpayers.
A "patch" for the Alternative Minimum Tax that would prevent millions of middle-class Americans from being taxed as if they were rich, could go over the cliff as well. Both Republicans and Democrats support doing another patch, but have not approved one.
(Read More: Middle Class Gets 'Cliffed' by Huge Tax If No Deal Reached)
At best, the Internal Revenue Service has warned that as many as 100 million taxpayers could face refund delays without an AMT fix. At worst, they could face higher taxes unless Congress comes back with a retroactive fix.
After Tuesday, Congress could move for retroactive relief on any or all of the tax and spending issues. But that would require compromises that Republicans and Democrats have been unwilling to make so far.
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