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December 29, 2012 4:48 pm
Democrats and Republicans in the Senate were locked in talks on Saturday in an effort to find a compromise on the fiscal cliff, with the aim of putting a proposal to a vote as early as Sunday to meet the end-of-year deadline.
However, the two sides were tussling over who should take the initiative to present a bill to the Senate to prevent the large tax rises and spending cuts that will kick in from January 1.
The talks are being led by Harry Reid, the Democratic Senate majority leader, and Mitch McConnell, the Republican minority leader.
President Barack Obama said on Friday he was “modestly optimistic” that a last-minute budget deal could be struck after an hour-long White House summit between Democratic and Republican congressional leaders.
The meeting followed days of gloom in which congressional leaders traded barbs over which side was to blame for the stalled talks.
Mr Obama said in his weekly radio address that: “Leaders in Congress are working on a way to prevent this tax hike on the middle class, and I believe we may be able to reach an agreement that can pass both houses in time.”
Repeating his warning from Friday, he added: “We’re now at the point where, in just a couple days, the law says that every American’s tax rates are going up. And that would be the wrong thing to do. We just can’t afford a politically self-inflicted wound to our economy.”
Senator Roy Blunt, a Republican from Missouri, said Republicans in the House of Representatives had made a start on a plan to “protect taxpayers” while “Senate Democrats have spent months drawing partisan lines in the sand”.
We just can’t afford a politically self-inflicted wound to our economy
- Barack Obama
“We still can avoid going over the fiscal cliff if the President and the Democrat-controlled Senate step forward this week and work with Republicans to solve this problem and solve it now,” he said.
Mr Obama said on Friday that if the Senate leadership could not forge a deal, he would urge Mr Reid to put a “bare bones” plan to a vote in the chamber extending present tax rates for all households earning less than $250,000.
Although largely symbolic, Mr Obama would in effect be daring Senate Republicans to vote against a plan that would keep existing rates for everyone except the top two per cent of taxpayers.
Automatic tax rises for all Americans and spending cuts together worth $600bn in 2013 will kick in from January in the absence of a deal on the fiscal cliff, a set of measures that threatens to tip the world’s largest economy back into recession.
Congressional leaders in both parties were positive after the Friday meeting, a striking turnround from a day earlier.
“We’ll be working hard to try to see if we can get there in the next 24 hours. So I’m hopeful and optimistic,” said Mr McConnell.
The S&P 500 on Friday closed lower for the fifth straight session on fears Washington will fail to strike a deal to avert the fiscal cliff. But the markets have so far been relatively unruffled by the ups-and-downs on the budget talks in Washington.
Despite the burst of optimism, the hurdles to a deal by midnight on Monday remain formidable, as a large bloc of Republicans in the House of Representatives, where the party holds sway, are implacably opposed to any tax rises.
John Boehner, the Republican house speaker, said after the meeting the house would consider any plan sent to it by the Senate. “The group agreed that the next step should be the Senate taking bipartisan action,” he said.
Mr McConnell, a renowned backroom dealmaker from Kentucky, will be the key to any deal, but he also has an eye on the Republican party’s conservative base, as he is up for re-election in 2014.
The major sticking point is the level at which higher tax rates kick in: Mr Obama initially proposed lifting them for households earning over $250,000, although in a later offer, he increased the threshold to $400,000.
Mr Boehner and Republican leaders in the House proposed in a concession last week higher rates for households earning more than $1m but they backed down after a revolt by some of their members.
Any deal will also include an extension of unemployment benefits for two million Americans without work. The benefits expire over the weekend.
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