US senate leaders sought a last-minute compromise to avoid middle-class tax increases and possibly prevent deep spending cuts at the dawn of the new year as President Barack Obama warned that failure could threaten the nation’s economic recovery.
The US faces the so-called “fiscal cliff” in January because tax rate cuts dating back to President George W. Bush’s tenure 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.
Unless Mr Obama and Congress act to stop them, about 536 billion US dollars in tax increases, touching nearly all Americans, will begin to take effect in January.
That will be coupled with about 110 billion US dollars in spending cuts, about 8% of the annual budgets for most federal departments. Economists predict that if allowed to unfold over 2013 this double whammy would result in a big jump in unemployment, financial market turmoil and a slide back into recession.
Mr Obama chastised politicians in his weekly radio and internet address for waiting until the last minute to try and avoid a “fiscal cliff”, yet said there was still time for an agreement.
“We cannot let Washington politics get in the way of America’s progress,” he said as the hurry-up negotiations unfolded.
Mr Obama said the nation “can’t afford a politically self-inflicted wound to our economy”.
Mr Obama held an hour-long, high-stakes meeting with the leaders of Congress on Friday afternoon in a last-ditch effort to find a path to averting the automatic austerity measures that begin to take effect January 1.
Following Friday’s White House meeting, aides to Senate Republican leader Mitch McConnell and Senate Majority Leader Harry Reid began racing against the clock for a bipartisan bargain.
The leaders could present legislation to senators as early as today, with a vote possible today or tomorrow.
For all the recent expressions of urgency, bargaining took place by phone, email and paper in a Capitol nearly empty except for tourists. Alone among top politicians, Mr McConnell spent the day in his office.