Obama extends Bush-era tax cuts

US President Barack Obama has signed into law a bill extending Bush-era tax cuts and said he hoped the bipartisan spirit that had made it possible would help restore America's faith in Washington.

"We are here with some good news for the American people this holiday season. By a wide bipartisan margin both houses of Congress have passed a package of tax relief that will protect the middle class that will grow our economy and create jobs for the American people," he said at a White House ceremony.

Obama brokered the tax deal with Republicans over the objections of many of his fellow Democrats. US lawmakers passed the $858 billion package of renewed tax cuts and more unemployment benefits near midnight.

Obama defended the bill as the right thing to do for the country despite its flaws, calling it a "substantial victory for middle class families".

He signaled it could be a blueprint for future cooperation that would make ordinary Americans feel better about their government.

The bill is expected to provide at least a short-term boost to the US economy and reduce unemployment, which remains near 10 per cent. But it will also add to a $14 trillion national debt that some fear is nearing dangerous levels.