The White House and Democrats initially declined the offer, preferring to prevent the cuts from kicking in at the Pentagon and domestic agencies alike. Officials said they might yet reconsider, although there was also talk of a short-term delay in the reductions.
While the deadline to prevent tax increases and spending cuts was technically midnight, passage of legislation by the time a new Congress takes office at noon on Jan. 3, 2013 the likely timetable would eliminate or minimize any inconvenience for taxpayers.
The scene at both ends of historic Pennsylvania Avenue was remarkable, even for a government grown accustomed to gridlock. As darkness fell on the last day of the year, Obama, Biden and their aides were at work in the White House, while the lights burned in the House and Senate.
For now, more than the embarrassment of a gridlocked Congress working through New Year's Eve in the Capitol was at stake.
Economists in and out of government have warned that a combination of tax hikes and spending cuts could trigger a new recession, and the White House and Congress have spent the seven seeks since the Nov. 6 elections struggling for a compromise to protect the economy.
Even now, with time running out, partisan agendas were evident.
Obama used his appearance to chastise Congress, and to lay down a marker for the next round of negotiations early in 2013 when Republicans intend to seek spending cuts in exchange for letting the Treasury to borrow above the current debt limit of $16.4 trillion.
"Now, if Republicans think that I will finish the job of deficit reduction through spending cuts alone and you hear that sometimes coming from them ... then they've got another think coming. ... That's not how it's going to work at least as long as I'm president," he said.
"And I'm going to be president for the next four years, I think," he added.
Officials in both parties said agreement had been reached to prevent tax increases on most Americans, while letting rates rise on individual income over $400,000 and household earnings over $450,000 to a maximum of 39.6 percent from the current 35 percent. That marked a victory for Obama, who campaigned successfully for re-election on a platform of requiring the wealthy to pay more.
Any agreement would also raise taxes on the value of estates exceeding $5 million to 40 percent, as well as extend expiring jobless benefits for two million unemployed, prevent a 27 percent cut in fees for doctors who treat Medicare patients and likely avoid a near-doubling of milk prices.
Much or all of the revenue to be raised through higher taxes on the wealthy would help hold down the amount paid to the Internal Revenue Service by the middle class.
In addition to preventing higher rates for most, any agreement would retain existing breaks for families with children, for low-earning taxpayers and for those with a child in college.
In addition, the two sides agreed to prevent the Alternative Minimum Tax from expanding to affect an estimated 28 million households for the first time in 2013, with an average increase of more than $3,000. The law was originally designed to make sure millionaires did not escape taxes, but inflation has gradually exposed more and more households with lower earnings to its impact.
To help businesses, the two sides also agreed to extend an existing research and development tax credit as well as other breaks designed to boost renewable energy production. Details on those provisions were sketchy.
Obama's remarks irritated some Republicans.
Sen. John McCain of Arizona they would "clearly antagonize members of the House."
There was no response from Speaker John Boehner, who has been content to remain in the background while McConnell did the negotiating.
Some Democratic officials said that with his comments, Obama was hoping to ease the concerns of liberals in his own party who feared he had given away too much in the current round of talks over taxes.
Obama campaigned on a call for higher tax rates on income over $200,000 for individuals and $250,000 for couples, far lower than the $400,000 and $450,000 that Biden and McConnell have set.
Similarly, the pending agreement on the estate tax would allow more large estates to escape taxation than many Democrats prefer.
By late afternoon, the two sides remained separated by a stubborn dispute over spending cuts scheduled to take effect on the Pentagon and domestic programs alike.
Officials familiar with the talks said the White House has been seeking agreement to stop the cuts from taking effect, either for a period of months or a year, and wanted to count higher taxes created elsewhere in the legislation to offset the cost.
Republicans have said they are willing to delay the across-the-board cuts, but only if Obama and Democrats agree to targeted savings from government programs to take their place.
Associated Press writers Andrew Taylor, Alan Fram and Ben Feller contributed to this report.
Details of tentative deal averting 'fiscal cliff'
Highlights of a tentative agreement Monday between the White House and Senate Minority Leader Mitch McConnell, R-Ky., aimed at averting wide tax increases and budget cuts scheduled to take effect in the new year. The measure would raise taxes by about $600 billion over 10 years. Still unresolved is how to avert across-the-board spending cuts set to begin slashing the budgets of the Pentagon and numerous domestic agencies.
Income tax rates: Extends decade-old tax cuts on incomes up to $400,000 for individuals, $450,000 for couples. Earnings above those amounts would be taxed at a rate of 39.6 percent, up from the current 35 percent. Extends Clinton-era caps on itemized deductions and the phase-out of the personal exemption for individuals making more than $250,000 and couples earning more than $300,000.
Estate tax: Estates would be taxed at a top rate of 40 percent, with the first $5 million in value exempted for individual estates and $10 million for family estates. In 2012, such estates were subject to a top rate of 35 percent.
Capital gains, dividends: Taxes on capital gains and dividend income exceeding $400,000 for individuals and $450,000 for families would increase from 15 percent to 20 percent.
Alternative minimum tax: Permanently addresses the alternative minimum tax and indexes it for inflation to prevent nearly 30 million middle- and upper-middle income taxpayers from being hit with higher tax bills averaging almost $3,000. The tax was originally designed to ensure that the wealthy did not avoid owing taxes by using loopholes.
Other tax changes: Extends for five years Obama-sought expansions of the child tax credit, earned income tax credit, and an up to $2,500 tax credit for college tuition. Also extends for one year accelerated "bonus" depreciation of business investments in new property and equipment, a tax credit for research and development costs and a tax credit for renewable energy such as wind-generated electricity.
Unemployment benefits: Extends jobless benefits for the long-term unemployed for one year.
Cuts in Medicare reimbursements to doctors: Blocks a 27 percent cut in Medicare payments to doctors for one year. The cut is the product of an obsolete 1997 budget formula.
Social Security payroll tax cut: Allows a 2 percentage point cut in the payroll tax first enacted two years ago to lapse, which restores the payroll tax to 6.2 percent.