Obama toughens stance over fiscal cliff that threatens us all
The US was edging towards a deal last night that would avoid a barrage of tax rises and spending cuts, after weeks of failed negotiations that have panicked markets and sent the country's disillusionment with Washington to new depths.
An exasperated US President Barack Obama has set a deadline of today for congressional leaders to reach an agreement to pull back from the so-called "fiscal cliff".
Going over the edge would probably doom the US economy to another recession and risk dragging much of the rest of the world down with it.
Harry Reid, the Democratic majority leader in the Senate, and Mitch McConnell, the Republican minority leader, were locked in talks all day after being summoned to the White House on Friday and told to find a solution to the deadlock in 48 hours.
As the two adversaries disappeared behind the heavy wooden doors of a Capitol Hill meeting room, some senior figures echoed Mr Obama's "modest optimism" that a deal could be brokered.
Wheels are in motion for the Senate to vote on a compromise package, one day before $607bn (€459bn) worth of tax rises and cuts would automatically be enacted.
The cliff-edge mechanism was devised under a previous deal to force both parties to compromise on long-term ways of reducing the $16.4trillion (€12.4trn) national debt.
Apart from a return for all Americans to higher tax rates that George W Bush reduced by several percentage points in 2001, there would be a $100bn (€76bn) cut in the defence budget, the low paid would lose some income credits and the long-term unemployed would lose their benefits.
The impact would be limited at first but would accumulate quite quickly into a hard landing. According to Fitch ratings agency, within six months, the tightening of the world's largest economy would "represent the single biggest near-term threat to a global economic recovery".
The main sticking point between Democrats and Republicans remains tax rates for the wealthy. The latter have insisted that only households with an annual income above $1m (€760,000) should return to higher tax levels of pre-2001.
But since coming to office, Mr Obama has been committed to raising taxes on families earning more than $250,000 (€189,000) a year.
A compromise figure of $400,000 (€303,000) is emerging for a deal that would also keep unemployment benefits flowing and preserve popular tax breaks.
If that agreement were approved by the Senate, it would then go to the Republican-controlled House of Representatives, which would have only hours in which to vote before the deadline.
Mr Obama's conservative foes would then be on the spot, facing the decision of whether to approve the legislation or take the blame for letting taxes rise for more than 90 per cent of Americans – "just to protect millionaires".
Whatever deal transpires, Washington is certainly playing up to Winston Churchill's adage that: "Americans can always be counted on to do the right thing, after they have exhausted all other possibilities."
Any compromise agreed in the next few days will be a short-term fix. It would not tackle long-term deficit reduction.