The measure would extend tax cuts for families at every income level, renew jobless benefits for the long-term unemployed and enact a new one-year cut in Social Security taxes that would benefit nearly every worker who earns a wage.
In a remarkable show of bipartisanship, the House gave final approval to the measure just before midnight Thursday, overcoming an attempt by rebellious Democrats who wanted to impose a higher estate tax than the one Obama agreed to. The vote was 277-148, with each party contributing an almost identical number of votes in favor (the Democrats, 139 and the Republicans, 138).
"What this bill represents is a complete surrender of Democratic principles," said Democratic Rep. Stephen Lynch of Massachusetts.
"This is so irresponsible. It contradicts everything as Democrats that we have been fighting for generations," said Maryland Rep. Donna Edwards, also a Democrat.
As a presidential candidate, Barack Obama promised to end some of the tax cuts for the wealthiest Americans and keep in place cuts for the middle class, but following the bruising mid-term election, and Republicans' threats to hold up legislation, the president relented and hammered out a compromise.
In a rare reach across party lines, Obama negotiated the $858 billion package with Senate Republicans. The White House then spent the past 10 days persuading congressional Democrats to go along, providing a possible blueprint for the next two years, when Republicans will control the House and hold more seats in the Senate.
While the measure sailed through the U.S. Senate easily earlier in the week, House Democrats were divided.
"Is this the best we can do to help those out of work?" asked Congressman Peter DeFazio, who represents Oregon.
"This bill will kill our children with very little input or benefit at the moment," said Maryland Rep. Michael Capuano.
"There probably is nobody on this floor who likes this bill," said House Majority Leader Steny Hoyer, D-Md. "The judgment is, is it better than doing nothing? Some of the business groups believe it will help. I hope they're right."
Rep. Dave Camp, R-Mich., said that with unemployment hovering just under 10 percent and the deadline for avoiding a big tax hike fast approaching, lawmakers had little choice but to support the bill.
"This is just no time to be playing games with our economy," said Camp, who will become chairman of the tax-writing House Ways and Means Committee in January. "The failure to block these tax increases would be a direct hit to families and small businesses."
Sweeping tax cuts enacted when George W. Bush was president were scheduled to expire Jan. 1 -- a little more than two weeks away. The bill extends them for two years, placing the issue squarely in the middle of the next presidential election, in 2012.
The extended tax cuts include lower rates for the rich, the middle class and the working poor, a $1,000-per-child tax credit, tax breaks for college students and lower taxes on capital gains and dividends. The bill also extends through 2011, a series of business tax breaks designed to encourage investment that expired at the end of 2009.
Workers' Social Security taxes would be cut by nearly a third, going from 6.2 percent to 4.2 percent, for 2011. A worker making $50,000 in wages would save $1,000; one making $100,000 would save $2,000.
"This legislation is good for growth, good for jobs, good for working and middle class families, and good for businesses looking to invest and expand their work force," said Treasury Secretary Timothy Geithner.
Some Democrats complained that the package is too generous to the wealthy; Republicans complained that it doesn't make all the tax cuts permanent.
Rep. Ginny Brown-Waite, R-Fla., called it "a bipartisan moment of clarity."
The bill's cost, $858 billion, would be added to the deficit, a sore spot among budget hawks in both parties.
"I know that we are going to borrow every nickel in this bill," Hoyer lamented.
At the insistence of Republicans, the plan includes an estate tax that would allow the first $10 million of a couple's estate to pass to heirs without taxation. The balance would be subject to a 35 percent tax rate.
Many House Democrats wanted a higher estate tax, one that would allow couples to pass only $7 million tax-free, taxing anything above that amount at a 45 percent rate. They argued that the higher estate tax would affect only 6,600 of the wealthiest estates in 2011 and would save $23 billion over two years.
House Speaker Nancy Pelosi, D-Calif., called the estate tax the "most egregious provision" in the bill and held a vote that would have imposed the higher estate tax. It failed, 194-233.
Rep. Elijah Cummings, D-Md., said he thought the White House could have gotten a better deal.
"When I talk to the Republicans they are giddy about this bill," he said.
(The Associated Press contributed to this report.)