US President Barack Obama has warned that failing to achieve a deal that would avoid a “fiscal cliff” could lead to “adverse reactions” in financial markets.
Obama spoke to an American news show on Sunday as congressional negotiators burrowed into their offices to stop the US economy from hitting a major crisis.
In just one day, the biggest tax increases ever to hit Americans in one shot are scheduled to begin. A variety of lower taxes are scheduled to expire at the end of Monday, the last day of the year.
Al Jazeera’s John Terrett explains the “fiscal cliff”
Obama told the news show that that his offers to Republicans “have been so fair that a lot of Democrats get mad at me’.’
He cited a proposal he made to House Speaker John Boehner to reduce cost-of-living increases for Social Security beneficiaries.
Meanwhile, Republican Senator Lindsey Graham told another US news show on Sunday that chances for a small “fiscal cliff” deal in the next 48 hours were “exceedingly good” and that Obama had “won”.
But Democrats and Republicans remained at loggerheads over a deal by Sunday evening.
One hour before they had hoped to present a plan, Democratic and Republican leaders said were still unable to reach a compromise.
“There are still serious differences between the two sides,” Senate Democratic Leader Harry Reid said.
Democrats said Republicans were proposing to slow future cost of living increases for Social Security recipients – a claim Republicans declined to confirm.
Aides to Reid, a Democrat, and Senate Republican leader Mitch McConnell worked on Saturday on a possible compromise that would set aside $600bn in tax increases and across-the-board government spending cuts that are set to kick in next week.
If allowed to rise, the approximately $500bn value of the revenue increases would represent a historic hike when taken together. The combined punch of the tax increases and spending cuts could push the US economy back into recession.
One congressional aide close to the talks said that most of what was being discussed late on Saturday would provide temporary patches to the “fiscal cliff” dilemma.
“They continue to go round and round,” the aide said of the negotiations, with ideas constantly in flux.
The aide, who asked not to be identified, said negotiators were discussing the possibility of putting off for a few months the $109bn in automatic spending cuts due to start on Wednesday.
Those cuts would be divided equally between military and non-military programs. It is feared that they could cause severe disruptions inside federal agencies if allowed to occur.
Earlier this week, talk of a temporary delay in the spending cuts was met with derision by some congressional aides.
The extension of the low income tax rates first put in place under Republican former President George W Bush would also be on a temporary basis, probably one year, the aide said.
No deal had been reached on the most difficult question: Democrats’ demand that upper-income earners – families making more than $250,000 a year – see their tax rates go up.
Republicans had been opposed to any rate increase, but lately have signalled a willingness to go along with a higher threshold – and a $400,000 figure has been floating around for days.
Under proposals being discussed, top earners could see their income tax rate rise to 39.6 percent, from the current 35 percent, in order to help tame budget deficits.
The aide added that Republicans still had not agreed to Obama’s call for extending long-term unemployment benefits, but that they were demanding some spending cuts to be included in a stop-gap deal.