The interim deal would raise income taxes on single earners with annual incomes above $400,000 and married couples with incomes above $450,000. It also blocks spending cuts for two months, extends unemployment benefits for the long-term jobless, prevents a 27 percent cut in fees for doctors who treat Medicare patients and prevents a spike in milk prices.
The high-stakes drama was resolved after days of back and forth between Vice President Joe Biden, negotiating for Democrats, and Senate Republican Leader Mitch McConnell of Kentucky, who finally came to an agreement late Monday night.
The measure was then brought to the Senate floor where it passed by an overwhelming majority of 89-8. Senators who voted against the legislation included Republicans Marco Rubio of Fla., Rand Paul of Kentucky, and Democrat Richard Shelby of Ala.
President Obama acknowledged the difficulties the parties had coming to an agreement and pushed the House to quickly approve the bill in a statement released just after the vote.
"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 statement said. "This agreement will also grow the economy and shrink our deficits in a balanced way -- by investing in our middle class, and by asking the wealthy to pay a little more."
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.
Senators from Louisiana, Arkansas and Mississippi voted to approve the deal.