US President Barack Obama announced last night that he was to cut short his traditional Hawaiian Christmas holiday and return to Washington in a last-ditch attempt to secure a deal to avoid the US going over the so-called fiscal cliff.
Leaving his wife, Michelle, and two daughters behind in Honolulu, Mr Obama was due back at his desk this morning as negotiations intensified to find a way of avoiding $680bn (€515bn) in automatic spending cuts and taxes that would take effect if a deal is not struck by midnight on December 31.
With a wide-ranging deal now seemingly out of reach, Mr Obama proposed a more limited plan before his holiday that would at least negate the most serious repercussions from going "over the cliff" – an event economists have warned could tip the US into recession.
Failure to reach a deal of any kind by the new year would mean increased taxes for all Americans – something neither party wants – although analysts say it would be several weeks before the effects of any changes to the tax code would be felt.
With many Republicans ideologically committed to never raising taxes, analysts have speculated that it may be more politically palatable for Republicans to allow all taxes to rise, and then quickly repeal the increases in January, presenting the plan as an effective tax cut. However, pressure is expected to build quickly on Congress and Mr Obama if the deadline passes and the financial markets – hitherto sanguine about the prospects for a deal – start to show signs of stress.
Among the public, hopes of a deal have dropped sharply, with only 50pc of Americans now expecting a resolution this year, according to a Gallup poll released yesterday – a swing of 15 percentage points against a deal in less than a week.
With US pre-Christmas high street sales growing at their slowest rate since 2008 this year, a coalition of big business chief executives has urged the politicians to put their differences aside and do a deal. (© Daily Telegraph, London)