US 'fiscal cliff' deal taking shape

US 'fiscal cliff' deal taking shape

The shape of a deal to avert the US "fiscal cliff" is emerging with just hours to go before a midnight deadline, Washington sources have said.

A statement from President Barack Obama was said to be imminent.

The deal in the works would raise tax rates on families making over $450,000 (€340,445) a year to 39.6%. The tax on estates worth more than $5m (€3.78m) would increase to 40% from 35%.

Unemployment benefits would continue for one year.

But the sources 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 tomorrow.

Democrats want to put off the cuts for one year and offset them with unspecified revenue.

Officials emphasised that negotiations were continuing and the emerging deal was not yet final. Urgent talks continued between the White House and congressional Republicans, with long-time negotiating partners vice president Joe Biden and Senate Republican leader Mitch McConnell leading.

The deal would achieve about $600bn (€453.9bn) in new revenue, the officials said.

Unless an agreement is reached and 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 109bn (€82.4bn) will be cut from defence and domestic programmes. Although both would be felt gradually, economists warn that if allowed to fully take hold, their combined impact would rekindle a recession.

Republicans, who control the House, have been scared of raising taxes. Democrats, who control the Senate and are in the White House, have been scared of cutting spending.

Each side has been scared of looking like it is giving in to the other.

Meanwhile, the country's chronic deficit spending - about one trillion dollars a year - continues without a deal to address it.

"This whole thing is a national embarrassment," senator Bob Corker, a Republican, told MSNBC.

If there is no deal, the effects could be harsh. The nation would lose up to 3.4 million jobs, the Congressional Budget Office has predicted. And budget cuts of 8% or 9% would hit most of the federal government.

And if the limit is not raised on how much the government can borrow, the government's officially reaching its 16.4 trillion (€12.4 trillion) ceiling could lead to a first-ever default in February or March that would shake worldwide confidence in the United States.

On top of that, the current Congress is in session only until noon on January 3. After that, a newly elected Congress with 13 new senators and 82 new House members would inherit the problem.

An unusual Sunday session of the Senate had showed little progress, despite Senate chaplain Barry Black's opening prayer in which he asked, "Look with favour on our nation and save us from self-inflicted wounds."

A Republican official familiar with the plans later confirmed the details described to The Associated Press.

Officials emphasised that negotiations were continuing and the emerging deal was not yet final.

Urgent talks continue between the White House and congressional Republicans, with long-time negotiating partners Vice President Joe Biden and Senate Republican leader Mitch McConnell leading.

Letting tax rates rise for couples with incomes of $450,000 (€340,445) a year would be a concession for Obama, who campaigned for re-election on a pledge to set the level at $250,000 (€189,136) for couples.

It would also mark a significant concession by Republican leaders who pledged to continue the George W. Bush-era tax cuts for all income earners.

The hope of the White House and lawmakers is to seal an agreement, enact it and send it to Obama for his signature before taxpayers feel the impact of higher income taxes or federal agencies began issuing furloughs or taking other steps required by spending cuts.

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