The deal will generate $600 billion in new revenue over 10 years, less than half the amount Obama first called for. It will raise income tax rates only on the very rich, despite Obama's campaign for broader increases.
Lawmakers in the House passed the bill late Tuesday night. After the Senate endorsed the legislation, the bill headed to President Barack Obama's desk for his signature.
Obama, who is vacationing in Hawaii, signed the bill using an autopen, a mechanical device that copies his signature.
Under the plan, income taxes will stay the same for everyone except individuals making $400,000 or couples making $450,000 a year or more. The bill also ensures there won't be a tax hike on estates valued at less than $5 million and extends unemployment benefits for 2 million people.
The tax package will not stop a temporary Social Security payroll tax that expired on Jan. 1. It will hit nearly every wage earner. Those with an annual income of $40,000 to $50,000 will see an increase of $579. The $100,000 to $200,000 range will see a $1,784 increase and those earning more than $1 million per year will face a more than $170,000 tax increase.
President Obama praised the compromise, but added he didn't want a repeat of the bickering in future negotiations.
"One thing that I think hopefully we'll focus on if we can put a package like this together with a little less drama and a little less brinkmanship and not scare the heck out of folks quite as much," Obama said in a press conference Tuesday.
Supporters of the bill in both parties expressed regret that it was narrowly drawn, and fell far short of a sweeping plan that combined tax changes and spending cuts to reduce federal deficits.
The deal includes no spending cuts, thereby failing to address hefty cuts scheduled to take effect with the new year in defense and government programs. The bill delays them for two months which sets the stage in Congress for another round of rancorous back-and-forth negotiations.
"The Senate, the president, and the vice president failed to meet their obligation, their own stated obligation which was to bring us a balanced bill, one that had tax adjustments, yes, but also had spending cuts," said Rep. Darrell Issa, California. "This one fails at that."
Still, many lawmakers are praising the compromise.
"Reconciling our differences was a monumental task, especially with the time growing short," said House Minority Leader Nancy Pelosi. "We appreciate the leadership of the vice president. We appreciate the leadership of the Republican and Democratic leaders in the Senate and we thank Speaker (John) Boehner."
The bill also avoids the so-called debt ceiling. In two months, the government will reach its limit on borrowing unless Congress acts.
On Wednesday, President Obama returned to Hawaii to finish his vacation. The president cut it short to tend to the economic crisis.