No legislation will be passed to implement any deal to avoid the sharp tax hikes and spending cuts of the US fiscal cliff before the midnight deadline, politicians said tonight.
With talks continuing, Republicans said there would be no bills ahead of the deadline.
But with Democrat President Barack Obama and Senate Republican leader Mitch McConnell both indicating that agreement was close, Congress could still pass legislation in the coming days retrospectively blocking the tax rises and spending cuts which many fear could severely damage the US and global economies.
Both men said they were still bargaining over whether – and how – to avoid 109 billion US dollars in cuts to defence and other federal spending programmes that are due to take effect.
Speaking from the White House, President Obama expressed regret his administration and Congress could not produce a “grand bargain” to address the chronic US deficit, but he said that was impossible “with this Congress, at this time”.
Both sides have been unable to make a sweeping deal since they set the midnight deadline in 2011 as motivation.
“There are still issues left to resolve, but we’re hopeful Congress can get it done,” Obama said. “But it’s not done.”
Despite the continuing impasse, the US stock market shot up, with investors betting a deal would eventually be done.
Officials familiar with the negotiations said progress had been made on a deal to address the biggest issue by raising tax rates on family income over 450,000 dollars a year.
But the issue of how to handle deep spending cuts remained unsolved.
Some leading Republicans objected to Mr Obama’s comments at the White House, during which a relaxed-looking president even cracked jokes.
“At a time of crisis, on New Year’s Eve ... you had the president of the United States go over and have a cheerleading, ridiculing-of-Republicans exercise,” Senator John McCain said.
But Mitch McConnell said he and the White House had agreed on preventing tax hikes and were very close to an overall deal that would also prevent spending cuts.
The hope of the White House and politicians was to seal an agreement, enact it and send it to President Obama for his signature before taxpayers felt the impact of higher income taxes or federal agencies began issuing furloughs - compulsory, unpaid leave for staff – or taking other drastic steps to cut spending.
The outline of a deal to avert the so-called fiscal cliff emerged this evening as officials familiar with the negotiations said the agreement would raise tax rates on families making over 450,000 dollars a year to 39.6%.
The tax on estates worth more than five million dollars would also increase, to 40% from 35%.
Unemployment benefits would continue for one year. Without that extension, two million people would lose benefits from early January.
But the officials said the White House and Republicans were at an impasse over what to do about automatic, across-the-board spending cuts set to start taking effect on New Year’s Day.
Democrats want to postpone spending cuts for a year and offset them with unspecified revenue.
Urgent talks continued between the White House and Republicans, with Vice President Joe Biden and McConnell leading.
The deal would achieve about 600 billion dollars in new revenue, the officials said.
Without an agreement approved by Congress by the start of New Year’s Day, more than a half-trillion dollars in tax increases for nearly all Americans will begin to take effect, and 109 billion dollars will be cut from defence and other federal spending programmes.
Though both would be felt gradually, economists have warned that if allowed to fully take hold, their combined impact would rekindle a recession.
Republicans, who control the House of Representatives, have been loath to raise taxes. President Obama’s Democrats, who control the Senate – the other house of Congress – have been wary of cutting spending.
And each side has been afraid of looking like it is giving in to the other.