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US leaders hurry to avert 'fiscal cliff'

Congressional leaders work on possible compromise in bid to avert January 1 deadline, as Obama again urges for deal.
Last Modified: 29 Dec 2012 21:41

President Barack Obama and congressional leaders have agreed to make a final effort to prevent the US from going over the "fiscal cliff".

A meeting between the two sides on Friday set off intense bargaining over tax rates as the New Year deadline looms.

The focus now turns to the Senate, where Harry Reid, the Democratic majority leader, and Mitch McConnell, who heads the Republican minority, will try to come up with a deal that can then be approved in the Republican-controlled House of Representatives before the end of the year.

Meanwhile, Obama has urged Congress to reach a deal to avoid the fiscal cliff, saying the nation "can't afford a politically self-inflicted wound to our economy".

Obama said in Saturday's radio and Internet address that he believed leaders in Congress may be able to reach an agreement.

He urged "Washington politics" to not get in the way of "America's progress".

Obama had earlier said he was "modestly optimistic" that an agreement could be found that would prevent taxes going up for almost all working Americans.

If details cannot be worked out in the Senate, Obama said he wanted both chambers in Congress to vote on a plan of his that would increase taxes only for households earning more than $250,000 a year.

The plan would also extend unemployment insurance for about two million Americans and set up a framework for a larger deficit reduction deal next year.

"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 $600bn in tax hikes and cuts to government spending will start kicking in on Tuesday if politicians cannot reach a deal, which could push the US economy into a recession.

To prevent that, the two Senate leaders will plunge into talks on Saturday that will focus mainly on the threshold for raising income taxes on households with upper-level earnings.They will also discuss whether the estate tax should be kept at current low levels or allowed to rise, a Democratic aide said.

The chances of success were unclear. Earlier talks between Obama and Boehner collapsed last week when several dozen anti-tax Republicans defied their leader and rejected a plan to raise rates for those earning $1m and above.

'Talking points'

Boehner reportedly 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.

A core of fiscal conservatives in Boehner's caucus opposes any tax hikes at all, and House Republicans also want to see Obama commit to major spending cuts.

"Republicans are quick to admit the president has better cards in this tactical game, simply by refusing to make changes necessary to keep tax cuts from expiring," said Al Jazeera's Tom Ackerman, reporting from Wsahington.

"But whether they meet the deadline or not is still very much an open question," our correspondent said about changes which would cause the US economy to shrink by four percent.

Obama arrived back at the White House on Thursday from a brief holiday in Hawaii that he cut short to restart stalled negotiations with Congress.

One component of the "fiscal cliff" - $109bn in automatic spending cuts to military and domestic programmes - is set to kick in on January 2.

The House and Senate passed bills months ago that reflect their own sharply divergent positions on the expiring low tax rates, which went into effect during the administration of former Republican President George W Bush.

When asked who they held more responsible for the "fiscal cliff" situation, 27 percent of Americans blamed Republicans in Congress, 16 percent blamed Obama and six percent pointed to Democrats in Congress. The largest percentage - 31 percent - blamed "all of the above".

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