Republican leaders bowed to intense pressure Friday and voted to extend a payroll tax holiday for 160 million Americans, handing victory to President Barack Obama after a tense showdown.
The deal, which finally sailed unopposed through the Senate and the House of Representatives two days before Christmas, allows Obama to end the year on a triumphant note after being thwarted by Republicans for months.
Obama welcomed the deal extending the tax break for two months, but swiftly urged lawmakers to return after the Christmas break and begin work on extending it for a full year "without drama, and without delay."
Friday's vote brought the curtain down on yet another cliffhanger standoff between Obama's Democratic allies, who control the Senate, and the Republicans who are in charge of the House, which has led to gridlock in Washington.
With the nation set to vote in presidential and legislative elections in November, Congress is bitterly divided as each side seeks to score points with an electorate weary of struggling with high unemployment and making ends meet.
House Republicans were forced to climb down and back a two-month extension of a two percent payroll tax cut, just days after blocking the measure that had emerged as a compromise from the Senate.
Their tactics had sparked a torrent of derision from the media, some conservative luminaries and Democrats who eagerly seized a chance to pose as the party of lower taxes, a mantle that Republicans usually claim.
"I'm pleased to say that they've got it done," Obama said in a brief White House statement, just after signing the bill into law.
"And when Congress returns, I urge them to keep working without drama, without delay, to reach an agreement that extends this tax cut as well as unemployment insurance through all of 2012.
"It is the right thing to do because more money spent by more Americans means more businesses hiring more workers and that's a boost for everybody."
Democratic Senate Majority Leader Harry Reid had sharp words for new conservative lawmakers, saying he hoped they had learned from the experience.
"People wonder why the approval rating for Congress is so low," Reid said. "I don't wonder. Everything has been a knockdown, dragout fight. There is no reason to do that."
Tens of thousands had rallied to a call from Obama to show how Americans would be badly hurt by losing $40 from their paycheck every two weeks if the tax holiday expired on January 1 by flooding Twitter with messages.
"I promise you, the American people, your voices made a difference on this debate," Obama said. "You didn't send us to this town to play partisan games, and to see who's up and who's down. You sent us here to serve and make your lives a little bit better, to do what's right."
The president then left for Hawaii for his Christmas vacation, having delayed joining his wife and daughters on the islands where he grew up in order to see the legislation through.
US media rounded on Republicans for what the Politico news website called their "unruly" behavior.
In an article headlined "The humbling of the House GOP," Politico said the standoff had "exposed both the political naivete of the freshman-heavy Republican conference and the sharp limits" of Speaker John Boehner's power.
In a deal hammered out over the weekend, the Senate had already agreed to a temporary two-month measure, but House Republicans had tried to hold out for a full one-year extension.
It "may not have been politically the smartest thing in the world," Boehner admitted Thursday of the gambit, partly powered by Tea Party conservatives.
The new compromise will also see Reid appoint negotiators to work on a one-year extension, and included face-saving language easing the burden of the tax cut on small businesses, which Republicans were able to argue was included only as a result of their holdout.
The deal means the payroll tax deduction, which is separate from income taxes and funds the US retirement system, will remain at 4.2 percent instead of rising to 6.2 percent on January 1.
Two million Americans will also keep unemployment benefits that were due to expire at the end of the year.
But Obama did not have things all his own way. The deal preserves language requiring the president to take another look at a controversial US-Canada oil pipeline project he had hoped to defer until after his reelection bid.