The US looked poised to go over the so-called ‘fiscal cliff’ last night - but a deal taking shape in Washington DC promised to swiftly rescue the country from economic disaster, with President Obama saying an agreement to protect middle class Americans from hefty tax hikes was finally in sight.
Negotiations that continued through the weekend dragged on until late on Monday, extinguishing any hope of a bill making it through both houses of Congress in time for the deadline of midnight last night.
Democratic and Republican lawmakers in the Senate, however, were said to have agreed on a way to insulate 98 per cent of Americans from tax rises. But differences over the spending cuts set to come into force this week meant that negotiations dragged on in the upper chamber. This led a spokesman for John Boehner, the speaker of the House of Representatives, to say there didn’t appear to be enough time to push new legislation through last night. Although later reports suggested the Senate might attempt a vote before the midnight deadline, the agreement would still need the approval of the House.
The result was that the country looked set to go over the cliff, but only until the deal is passed by both houses of Congress, something that could happen as early as today and swiftly reverse the automatic tax hikes.
In what appeared to be a late breakthrough, Republicans and Democrats in the Senate were also reported to have reached a tentative deal on the more than $100bn in spending cuts that had become a sticking point in talks earlier in the afternoon. Jon Kyl, the Senate minority whip, was reported by the Wall Street Journal as saying the two sides had agreed a two month deferral of the planned spending cuts.
Earlier, President Obama, while hailing a likely deal on taxes, suggested the spending cuts and the broader issue of the US deficit, including the debate over raising the debt ceiling, would be dealt with later in the New Year.
For now, he signaled the focus was on getting the narrow agreement through Congress. The pact, it is hoped, will protect the economy from a sudden jolt that could shove it back into recession. All told, the combined value of the so-called cliff of automatic tax rises and spending reductions has been calculated at more than half a trillion dollars.
“It’s not done,” the President announced as the clock began to run out. But, he said: “It appears an agreement to prevent this new year’s tax hike is in sight.”
Mr Obama used the Monday afternoon appearance to step up the pressure on both Democrats and Republicans in Congress to seal the limited agreement that in addition to resolving the issue of tax rises would, among other things, also extend benefits for those who have been unemployment and claiming federal aid for more than six months.
Under the deal, Democrats and Republicans in Congress were said to have agreed to protect the incomes of families earning up to $450,000 and individuals making up to $400,00 a year. Those whose earnings exceed the thresholds would faces higher taxes.
The pact came about after the intervention of Vice President Joe Biden, who waded in on Sunday, negotiating directly with Mitch McConnell, who leads the Republican minority in the Senate.
Both sides had to make significant concessions to reach the reported agreement on taxes. Mr Obama had until yesterday repeatedly campaigned for taxes to go up on those making more than $250,000 a year, while Mr McConnell and his Republican colleagues had argued against any tax rises for the rich.
BUDGET TALKS: FINAL COUNTDOWN
Sunday 30 December
9am Washington time (2pm GMT): Barack Obama appears in a pre-recorded interview for TV show Meet The Press, blaming Republicans for their intransigence on tax rises. A spokesman for Senator McConnell calls the remarks 'discordant'.
1pm: Senate convenes as talks go on behind the scenes between Senators Harry Reid and Mitch McConnell to try to reach a last-minute agreement.
3pm: Mr Reid and Mr McConnell reach their self-imposed deadline for a deal to be relayed to their Senate colleagues, who must decide if there is sufficient support to put it to a vote.
8.30pm: The earliest any vote might occur in the Senate.
Monday 31 December
Morning: House of Representatives meets, with any Bill passed by Senate facing another vote.
12 midnight: The deadline for new legislation, at which point America slides over 'fiscal cliff'.