President Barack Obama and U.S. congressional leaders agreed on Friday to make a final effort to prevent the United States from going over the “fiscal cliff,” setting off intense bargaining over Americans’ tax rates as a New Year’s Eve deadline looms.
With only days left to avoid steep tax hikes and spending cuts that could cause a recession, two Senate veterans will try to forge a deal that has eluded the White House and Congress for months.
Obama said he was “modestly optimistic” an agreement could be found. But neither side appeared to give much ground at a White House meeting of congressional leaders on Friday.
What they did agree on was to task Harry Reid, the Democratic Senate majority leader, and Mitch McConnell, who heads the chamber’s Republican minority, with reaching a budget agreement by Sunday at the latest.
“The hour for immediate action is here. It is now. We’re now at the point where in just four days, every American’s tax rates are scheduled to go up by law. Every American’s paycheck will get considerably smaller. And that would be the wrong thing to do,” Obama told reporters.
A total of $600 billion in tax hikes and automatic cuts to government spending will start kicking in on Tuesday - New Year’s Day - if politicians cannot reach a deal. Economists fear the measures will push the U.S. economy into a recession.
Pessimism about the fiscal cliff helped push U.S. stocks down on Friday for a fifth straight day. The Dow Jones industrial average dropped 158.20 points, or 1.21 percent. Retailers are blaming worries about the “fiscal cliff” for lackluster Christmas season shopping.
Under the plan hashed out on Friday, any agreement between McConnell and Reid would be backed by the Senate and then approved in the Republican-controlled House of Representatives before the end of the year.
But the House could well be the graveyard of any accord.
A core of fiscal conservatives there strongly opposes Obama’s efforts to raise taxes for the wealthiest as part of a plan to close America’s budget deficit. House Republicans also want to see Obama commit to major spending cuts.
Talks between Obama and Republican House Speaker John Boehner collapsed last week when several dozen Republicans defied their leader and rejected a plan to raise rates for those earning $1 million and above.
A Democratic aide said Boehner stuck mainly to “talking points” in Friday’s White House meeting, with the message that the House had acted on the budget and it was now time for the Senate to move.
TALKS ON ‘BIG NUMBERS’
The two Senate leaders and their aides will plunge into talks on Saturday that will focus mainly on the threshold for raising income taxes on households with upper-level earnings, a Democratic aide said. Analysts say both sides could agree on raising taxes for households earning more than $400,000 or $500,000 a year.