Obama, Congress leaders to meet as fiscal cliff looms28 december 2012, 11:15
US President Barack Obama will host top congressional leaders including his bitter Republican rivals on Friday in a last-ditch bid to halt America's slide over the "fiscal cliff."
The White House said he will meet his Republican foes House Speaker John Boehner and Senate Minority Leader Mitch McConnell, and with Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, Democratic allies.
McConnell and Boehner's offices also confirmed the 3:00 pm (2000 GMT) meeting, which comes amid bitter partisan exchanges and mounting pessimism over whether a budget deal can be struck before the year-end deadline.
"We'll see what the president has to propose. Members on both sides of the aisle will review it, and then we'll decide how best to proceed," McConnell said.
US Senate Minority Leader Mitch McConnell. ©AFP
"Hopefully there is still time for an agreement of some kind that saves the taxpayers from a wholly preventable economic crisis," he said, referring to the massive tax hikes and spending cuts that will occur in the absence of a deal.
Reid and McConnell spent Thursday's public appearances blaming one another for the looming failure, with Reid warning that the US economy would likely slide off the cliff at the start of 2013.
"I have to be very honest," Reid told the Senate during a rare holiday week session. "I don't know time-wise how it can happen now."
Despite reports from some quarters that Obama had drawn up his own plan to offer lawmakers, there was no sign that the White House was ready to intervene.
Lawmakers have refused to compromise and Reid blamed Republicans for the breakdown.
Reid said Boehner was running a "dictatorship" in the House by refusing to put to a vote a Senate-passed bill which would prevent taxes from rising on all households making less than $250,000 per year.
Senate Majority Leader Harry Reid (D-NV) (R). ©AFP
He also took Boehner to task for keeping his members on vacation while the Senate was hard at work.
"Nothing can happen on the fiscal cliff" without McConnell and Boehner, "and so far they are radio silent," Reid said, urging Boehner to "put the economic fate of the nation ahead of your own fate as speaker of the House."
Boehner's office shot back with a curt message.
"Senator Reid should talk less and legislate more," Boehner spokesman Michael Steel said, arguing the House has passed bills that would extend tax breaks for all Americans and replace the indiscriminate spending cuts.
"Senate Democrats have not," he added.
House leaders eventually ordered members to return to Washington on Sunday, warning that the House "may be in session through Wednesday, January 2."
A new Congress convenes on January 3.
The deadlock has spooked markets, left Americans wondering whether they will pay thousands more in taxes next year, and alarmed the Pentagon, which fears the looming defense cuts could undermine the military.
The stakes grew even higher when Treasury Secretary Timothy Geithner warned this week that the nation will reach its $16.39 trillion debt limit on December 31, forcing the Treasury to take "extraordinary measures" to avoid a default.
Experts say a failure to strike a compromise by New Year's Eve could plunge the world's biggest economy into recession, and wrangling over the debt ceiling will only exacerbate fiscal uncertainty.
Obama has long pushed for an extension of the Bush-era tax breaks for households earning up to $250,000.
US President Barack Obama. ©AFP
But most Republicans in Congress have signed a no-new-taxes pledge, and it was unclear how many would violate that oath in order to strike a deal.
Reid accused Boehner of wanting to go over the fiscal cliff and see all taxes rise, then allow Republicans to vote to reduce middle-class taxes to pre-2013 rates.
The Senate's newest member, Hawaii Democrat Brian Schatz, who was sworn in Thursday to fill the seat of late senator Daniel Inouye, said he was aiming at compromise.
"It's at this stage difficult to understand why we would inflict this on ourselves," Schatz said.
"I'm hoping that cooler heads will prevail and we will be able to avert this disaster."
By Michael Mathes
The "fiscal cliff" is a combination of dramatic spending cuts and tax increases mandated to take effect beginning in January if President Barack Obama and Republicans cannot bridge their differences on how best to reduce the nation's budget deficit and debt.
To add to a drama that could reverse the slow US recovery and impact the global economy, the United States is also about to reach its borrowing limit so Congress will also be asked to raise the government's debt ceiling.
WHAT IS THE FISCAL CLIFF?
The Budget Control Act of 2011 codified in law a grudging political compromise forcing the government to slash spending by $1.2 trillion over 10 years from January 1, 2013.
Next year's cuts, called "sequestration," would be about $109 billion.
Also on that date, a package of tax reductions and an extension of unemployment benefits will expire, meaning taxes will rise significantly for most Americans.
WHY WILL THIS HAPPEN?
Democrats and Republicans have long been deadlocked over whether to address a $1 trillion-plus annual budget gap with higher taxes or lower spending.
The Budget Control Act was a poison-pill deal designed to force them to find a less austere compromise, but political wrangling and dysfunction meant no deal was done, and the deadline is now looming.
WHAT HAPPENS IF THE CLIFF IS NOT AVOIDED
Together, higher taxes and lowered spending could slice the $1.1 trillion deficit racked up in fiscal 2012 (ended September 30) by almost $500 billion next year, according to the Congressional Budget Office, vastly improving the government's financial picture.
But the CBO estimates the shock treatment would send the country back to recession and push the unemployment rate to 9.1 percent.
Deep cuts would come to both defense and non-defense spending. Government suppliers and contractors would lose business, and temporary furloughs could be in store for tens of thousands of federal employees.
Taxes and automatic paycheck deductions would increase for most Americans, reducing the cash they have for spending, and taxes on capital gains and dividends would rise, hitting investors.
WHAT IS THE DEBT CEILING?
The US government will hit its statutory $16.39 trillion debt limit on Monday, according to Treasury Secretary Timothy Geithner.
The limit is set by Congress, and if it is not raised, the United States will not be able to borrow any more money and would, in theory, be forced to slash spending to make ends meet.
Possible, but desperate, remedies would include halting pay to the military, retirement health benefits, social security, and failing to pay government debts.
WILL THE US DEFAULT ON ITS DEBT?
Not immediately. The Treasury has various extraordinary measures in its armory, including halting the issuance of securities to state and local governments, which could buy about two months of leeway.
WHAT WOULD A DEFAULT MEAN?
No one is sure: the dollar, and Treasury bonds, are the primary currency of global finance, and holders do not really have any alternatives. And most believe that eventually the US government would make good on its debts. However, the country's credit rating could be further downgraded, likely pushing up its borrowing costs over the medium term and possibly diminishing the dollar's cachet in world finance.
WHAT WILL CONGRESS DO?
Eventually, Congress is likely to raise the debt ceiling but Republicans who run the House of Representatives will use the showdown as leverage to demand spending cuts from Obama in return. It is uncertain how high the raised borrowing limit will be, and in any case any resolution will likely trigger a new confrontation between Obama and Republicans the next time around.