With hours to go until the midnight deadline when taxes would rise for every American family, US President Barack Obama appeared at the White House to announce that a compromise was almost within reach.
"Today it appears that an agreement to prevent this new year's tax hike is within sight but it's not done," Mr Obama said in a relaxed and often jocular speech in front of middle-class workers who would be hit by the tax rises.
"There are still issues left to resolve, but we're hopeful that Congress can get it done."
The deal being forged in the senate looked likely to include higher taxes only on households making more than $450,000 (€340,000) a year – nearly twice the threshold Mr Obama had sought during the election.
The significant concession on taxes was likely to inflame the liberal wing of Mr Obama's party and earlier in the day left-wing senators signalled that they could try to sabotage the deal.
He added that for Mr Obama to sign off on the agreement would "lock in forever the idea that $450,000 a year is middle-class in America" when the country's average household income was about $50,000 (€37,000).
Last night, the deal still needed to be finalised and passed by the senate, where procedures allow even a single senator to derail a vote by 'filibustering', before being sent to the House of Representatives.
Mr Obama also sought to reassure Democrats that he would continue to fight for a more comprehensive deficit reduction plan based on a "balanced approach" between new revenues and spending cuts.
"If Republicans think I will finish the job of deficit reduction through spending cuts alone. . . without asking also equivalent sacrifice from millionaires or companies with a lot of lobbyists, if they think that's the formula for how we solve this thing, then they've got another thing coming," Mr Obama said.
Despite the tension across Washington and the cloud of uncertainty over the American economy, Mr Obama struck a surprisingly relaxed tone during his appearance at the White House, at one point joking about going to an audience member's house for New Year's celebrations.
Senator John McCain, the president's 2008 election opponent, accused Mr Obama of endangering the deal he had just called on congress to pass.
"I guess I have to wonder and I think the American people have to wonder whether the president really wants this issue resolved or whether it is to his short-term political benefit for us to go over the cliff," Mr McCain asked.
Mr McCain said Mr Obama's remarks would "clearly antagonise" members of the Republican-controlled House of Representatives, where many members had signed pledges to reject tax rises even for the wealthiest Americans.
The Republican leadership was bracing for a rebellion from the right over the compromise and would likely be forced to rely on Democratic votes to move the deal through. Earlier last month, House Republicans rejected a proposal by their own leaders that would have limited tax rises to only those making more than $1m a year. (© Daily Telegraph, London)