Fiscal cliff deadline draws near

Fiscal cliff deadline draws near

The White House and US Senate Republicans sorted through disputes over taxing the wealthy and cutting the Defence Department and other federal agencies as tonight’s midnight deadline for avoiding a “fiscal cliff” drew to within hours.

At stake are sweeping tax hikes and across-the-board spending cuts set to take effect at the turn of the year.

Taken together, they have been dubbed the fiscal cliff, and economists warn the one-two punch – which leaders in both parties have said they want to avoid - could result in a big jump in employment, turmoil in financial markets and send the still-fragile economy back into recession.

Republican Senate Minority Leader Mitch McConnell spoke repeatedly to Vice President Joe Biden, a former Senate colleague, in hopes of settling remaining differences and clinching a breakthrough that has evaded the two sides since President Barack Obama’s November re-election.

In one indication of the 11th-hour activity, aides said the president, Mr Biden and top administration bargainer Rob Nabors were all working late at the White House, and Mr McConnell was making late-night phone calls as well.

The House and Senate planned to meet today, a rarity for New Year’s Eve, in hopes of having a tentative agreement to consider. Yet despite the flurry of activity, there was still no final pact.

Unless an agreement is reached and approved by the start of New Year’s Day, more than 500 billion US dollars in 2013 tax increases will begin to take effect and 109 billion US dollars will be carved from defence and domestic programmes

“There is still significant distance between the two sides, but negotiations continue,” Democratic Senate Majority Leader Harry Reid said shortly before the Senate ended a rare Sunday session.

“There is still time to reach an agreement, and we intend to continue negotiations.”

The US faces the fiscal cliff because tax rate cuts enacted in 2001 and 2003 during President George W. Bush’s administration expire on December 31.

The pending across-the-board reductions in government spending, which will slice money out of everything from social programmes to the military, were put in place last year as an incentive to both parties to find ways to cut spending.

That solution grew out of the two parties’ inability in 2011 to agree to a grand bargain that would have taken a big bite out of the deficit.

In a move that was sure to irritate Republicans, Mr Reid was planning – absent a deal – to force a Senate vote on Mr Obama’s campaign-season proposal to continue expiring tax cuts for all but those with income exceeding 200,000 US dollars for individuals and 250,000 US dollars for couples.

Attached to the measure – which the Republicans seemed likely to block – would be an extension of jobless benefits for around two million long-term unemployed people. The plan was described by Senator Richard Durbin of Illinois, the chamber’s number two Democrat.

The House and Senate met ready to debate an agreement or at least show voters they were trying. But the day produced alternating bursts of progress and pitfalls, despite Senate chaplain Barry Black’s opening prayer in which he asked the heavens: “Look with favour on our nation and save us from self-inflicted wounds.”

In one sign of movement, Republicans dropped a demand to slow the growth of Social Security and other benefits by changing how those payments are increased each year to allow for inflation.

Mr Obama had offered to include that change, despite opposition by many Democrats, as part of earlier, failed bargaining with Republican House Speaker John Boehner over a larger deficit reduction agreement.

But Democrats said they would never include the new inflation formula in the smaller deal now being sought to forestall wide-ranging tax boosts and budget cuts, and Republicans relented.

“It’s just acknowledging the reality,” Republican Senator Susan Collins said of her party’s decision to drop the idea.

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