President Barack Obama warned squabbling lawmakers that they must reach a deal on taxes and spending cuts or risk the consequences to the US economy, as the clock ticked down to the drop over the dreaded fiscal cliff, which could see America fall back into recession.
The US government has until midnight tonight to reach a deal, after which expiring legislation will automatically trigger a combination of more than $600bn in tax rises and spending cuts, heralding economic turmoil in the US and beyond.
But despite some signs of progress, Senate leaders remained locked in eleventh-hour negotiations, without a package to present to their colleagues for a vote. In an appearance on NBC’s Meet the Press, Mr Obama maintained pressure on Congress to come to a bipartisan compromise before the deadline.
“If people start seeing that on January 1st this problem still hasn't been solved, that we haven't seen the kind of deficit reduction that we could have had, had the Republicans been willing to take the deal that I gave them ... then obviously that's going to have an adverse reaction in the markets,” he said in the interview, recorded on Saturday and broadcast yesterday.
Mr Obama said his priority was to avoid tax rises for middle-class families, which would reduce consumer spending and could cause a catastrophic slowdown of the US economy. But in return for consenting to spending cuts, the President reiterated his demand that Republicans agree an end to Bush-era tax cuts for the wealthy.
“They say that their biggest priority is making sure that we deal with the deficit in a serious way,” Mr Obama said. “But the way they're behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected. That seems to be their only overriding, unifying theme.”
Republicans pushed back against Mr Obama’s comments, with John Boehner, the Republican House Speaker, saying that, “Americans elected President Obama to lead, not cast blame”. A spokesman for Republican Senate minority leader Mitch McConnell called the President’s remarks “discordant.”
After Boehner failed to come to terms with the White House before Christmas, responsibility for crafting new budget legislation fell over the weekend to the Senate, with Mr McConnell and Democrat majority leader Harry Reid working until late on Saturday night to find a deal.
Smoke signals from the Capitol were mixed. Republican Senator Lindsey Graham told Fox News that the President’s modest optimism looked set to be rewarded with at least a short-term deal. The odds for an agreement being reached were “exceedingly good,” said Mr Graham. “The President won. The President campaigned on raising rates and he’s going to get a rate increase.” But Dick Durbin, the second most powerful Democrat in the Senate, warned CBS that there was “still a chasm” between the two parties.
Mr Reid and Mr McConnell had failed to reach a compromise by their own self-imposed deadline of 3pm yesterday, with Mr Reid telling the Senate that the parties were still “apart on some pretty big issues.” The two leaders held separate meetings with their party colleagues yesterday afternoon, in the hopes of finding solutions to the deadlock. Mr Reid later announced that there would be no vote on new measures before today.
Should a bill be passed by the Senate, it would then face a difficult vote in the House of Representatives, before reaching the President’s desk. Without such an agreement, taxes on almost all Americans will increase, while the two million unemployed who have been dependent on federal aid for more than six months will be denied any future benefit cheques.
The major sticking point in negotiations has long been where to set a threshold for tax rises on the wealthy. Democrats want to raise the tax rates of anyone with annual earnings of more than $250,000 (£155,000). Before talks broke down over Christmas, Obama offered a compromise threshold of $400,000, with the shortfall met by spending cuts.
There are indications, though, that some Republicans will oppose any deal which includes higher taxes.
In theory, lawmakers can postpone an agreement until as late as mid-January, when they could repeal the most perilous measures of the “cliff”, but such a delay might have damaging economic repercussions, and even cause a panic in the markets. The President said that if a deal was not met by tonight, he would personally introduce a basic bill to cut taxes on the middle class.
BUDGET TALKS: FINAL COUNTDOWN
Sunday 30 December
9am Washington time (2pm GMT): Barack Obama appears in a pre-recorded interview for TV show Meet The Press, blaming Republicans for their intransigence on tax rises. A spokesman for Senator McConnell calls the remarks 'discordant'.
1pm: Senate convenes as talks go on behind the scenes between Senators Harry Reid and Mitch McConnell to try to reach a last-minute agreement.
3pm: Mr Reid and Mr McConnell reach their self-imposed deadline for a deal to be relayed to their Senate colleagues, who must decide if there is sufficient support to put it to a vote.
8.30pm: The earliest any vote might occur in the Senate.
Monday 31 December
Morning: House of Representatives meets, with any Bill passed by Senate facing another vote.
12 midnight: The deadline for new legislation, at which point America slides over 'fiscal cliff'.