Story Summary

Fiscal Cliff

Lawmakers are trying to negotiate a last-minute deal aimed at heading off a year-end combination of spending cuts and tax increases that could trigger a new recession.

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obamaWASHINGTON (CNN)  — President Barack Obama has signed into law a bill to avert the fiscal cliff, a day after the House and Senate approved the much-debated legislation.

Obama, who returned to his family vacation in Hawaii after Tuesday’s House vote, signed the bill via autopen on Wednesday.

But new battles over taxes and spending await Washington in the next few weeks.

Congress averted that self-built precipice late Tuesday when the House voted to stave off widespread tax increases and deep spending cuts by accepting a brokered Senate compromise. It makes permanent the Bush administration’s tax cuts for individuals earning less than $400,000 per year and couples earning less than $450,000.

It raises rates on those who make more than that from 35% to 39.6%, bringing back a top tax bracket from the Clinton administration, and will raise roughly $600 billion in new revenues over 10 years, according to various estimates.

The bill also extends unemployment insurance and delays for two months the threat of sequestration — a series of automatic, across-the-board cuts in federal spending.

Economists had predicted the combination of those tax increases and spending cuts could have thrown the U.S. economy back into recession and driven unemployment back into the 9% range.

Meanwhile, a new Congress takes office on Thursday, and lawmakers will soon be confronted by the need to raise the federal debt ceiling and what to do about the still-hanging sequester — a legacy of the last battle over the debt ceiling, in 2011.

“The sum total of all the budget agreements we’ve reached so far proves that there is a path forward that is possible, if we focus not on our politics but on what’s right for the country,” Obama told reporters late Tuesday, after the House approved the fiscal cliff deal. “And the one thing that I think, hopefully, in the new year, we’ll focus on is seeing if we can put a package like this together with a little bit less drama, a little less brinksmanship, not scare the heck out of folks quite as much.”

The Bush tax cuts expired at midnight Monday, while sequestration had been scheduled to start when federal offices reopened Wednesday.

World markets rose after the late-night vote. U.S. stocks jumped, too, with the Dow Jones Industrial Average rising nearly 2% by mid-afternoon.

Tuesday night’s 257-167 vote saw Boehner, R-Ohio, and about a third of the GOP majority lining up with Democrats against most of their own caucus, including Majority Leader Eric Cantor and party whip Kevin McCarthy. Rep. Nan Hayworth, an outgoing Republican representative from New York, said she was a “reluctant yes.”

“This is the best we can do, given the Senate and the White House sentiment at this point in time, and it is at least a partial victory for the American people,” Hayworth said. “I’ll take that at this point.”

The Senate plan was brokered by Vice President Joe Biden and Senate Minority Leader Mitch McConnell, R-Kentucky, and it passed that Democratic-led chamber 89-8. But many House Republicans complained the bill did too little to cut spending while raising taxes for them to support it.

Conservative lobbyist Grover Norquist, whose Americans for Tax Reform pushes candidates to sign a pledge never to raise taxes, said the plan preserves most of the Bush tax cuts and won’t violate his group’s beliefs.

“The Bush tax cuts lapsed at midnight last night,” Norquist tweeted Tuesday. “Every (Republican) voting for Senate bill is cutting taxes and keeping his/her pledge.”

But Rep. Jeff Landry, R-Louisiana, told CNN’s “Early Start” that Obama convinced Boehner “to undo everything he promised he would do” after the 2010 elections that gave the GOP control of the House.

“They did a debt ceiling deal, gave the president $2.1 trillion,” Landry said. “They turned that deal off for two months. That’s going to be another fight on top of the sequestration, a debt ceiling fight.”

Other Republicans warned that as they did in 2011, they’ll be demanding additional cuts before they agree to raise the federal cap on borrowing.

“The president has maxed out his credit card, and he is not going to get an unlimited credit card,” Sen. John Barrasso, R-Wyoming, told CNN. “We’re going to talk specifically about cuts and specifically focused on tax reform as well as helping to save and strengthen Medicare and Social Security. And that’s the next discussion we’re going to have in Washington.”

The federal government bumped up against its $16.4 trillion debt ceiling on Monday and has about two months before it runs out of ways to shuffle money around to keep Washington within its legal borrowing limit. Obama had sought to resolve the issue as part of the fiscal cliff negotiations, but the issue never made it to a final bill.

Tuesday night, the president warned Congress that he will not tolerate another round of brinksmanship that could have “catastrophic” effects on the global economy.

“While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they’ve passed,” he said.

The last debt-ceiling battle led to the sequester, a kind of fiscal doomsday device that Congress was supposed to disarm by agreeing to more than $1 trillion in other cuts over the next decade. They didn’t, leaving federal agencies preparing to slash spending by $110 billion by the end of the 2013 budget year.

Before Tuesday night, the Defense Department had been preparing to issue furlough notices for its entire civilian work force of 800,000. Those notices were stayed on Wednesday — but Pentagon officials say they’re worried that unpaid leave may be harder to implement later in the fiscal year.

“We hope Congress can find a way to end sequester once and for all,” Pentagon spokesman George Little said.

While the deal gives Obama bragging rights for raising income taxes on the wealthiest Americans — the first rate increase for any Americans since 1993 — it also leaves him breaking a promise.

Obama had vowed to raise tax rates for the top-earning 2% of Americans, including those with household income above $250,000 and individuals earning more than $200,000.

Raising the threshold for higher tax rates shrinks the number of Americans affected. While nearly 2% of filers have adjusted gross incomes over $250,000, only 0.6% have incomes above $500,000, according to the Tax Policy Center.

By comparison, Census Bureau figures put the median U.S. household income at just over $50,000.

And despite the last-minute fiscal cliff agreements, Americans are still likely to see their paychecks shrink somewhat because of a separate battle over payroll taxes.

The government temporarily lowered the payroll tax rate in 2011 from 6.2% to 4.2% to put more money in the pockets of Americans. That adjustment, which has cost about $120 billion each year, expired Monday.

Now, Americans earning $30,000 a year will take home $50 less per month. Those earning $113,700 will lose $189.50 a month.

The legislation also caps itemized deductions for individuals making $250,000 and for married couples making $300,000. Taxes on inherited estates over $5 million will go up to 40% from 35%, and that threshold will be indexed for inflation.

The alternative minimum tax, a perennial issue, will be permanently adjusted for inflation. Child care, tuition and research and development tax credits will be renewed. The “Doc Fix” — reimbursements for doctors who take Medicare patients — will continue, but it won’t be paid for out of the Obama administration’s signature health care law.

WASHINGTON — A sharply divided House Republican leadership struggled to reach agreement on a measure to avoid part of the so-called “fiscal cliff,” as key members said they could not support the compromise approved early Tuesday by the Senate.

In a closed-door meeting of Republican House members, Rep. Eric Cantor of Virginia, the No. 2 Republican in the chamber, said he could not support the Senate-passed bill, according to two GOP lawmakers. Other Republicans said the bill would have to be amended and returned to the Senate.

Rep. Spencer Bachus (R-Ala.), chairman of the Financial Services Committee, emerged from the meeting saying he would “shocked” if House doesn’t amend the bill this afternoon and send it back to Senate.

“We’re building a consensus that we have to address spending,” he said. “The president won his election; I also won my election.”

Such a plan would likely stall the bill for an indefinite period, as the Senate has gone into recess. The new Congress convenes on Thursday at noon. Further delays would be necessary if legislative action is not completed by then.

Under existing law, tax rates on nearly all Americans went up on Tuesday. The impact of those new tax rates won’t be felt for a few days, but if Congress does not act to roll them back, economists have projected that the higher rates, coupled with spending cuts that also have taken effect, might be enough to tip the economy back into recession.

The Senate bill dealt only with the tax aspects of the year-end fiscal deadline. It rolled back income tax increases on all but the wealthiest Americans, limiting the hikes to individuals with incomes over $400,000 and couples with incomes over $450,000.

But the bill deliberately did not address the spending side of the ledger, leaving that to a further debate over the next couple of months. That was one of several aspects of the bill causing problems among House Republicans.

The official cost estimate by the Congressional Budget Office was also adding to the challenge of mustering Republican votes. The tax increases and spending cuts in the “fiscal cliff” would sharply reduce the deficit – too sharply in the eyes of most economists. By comparison with those measures, the Senate-passed legislation would make the deficit worse by nearly $330 billion for the 2013 fiscal year, and just shy of $4 trillion over the course of the next decade.

The main items that add to the deficit – at least in comparison with existing law – are the decisions to keep taxes low on 98% of American households and a permanent adjustment of the Alternative Minimum Tax to keep it from affecting millions of additional taxpayers.

Earlier in the day, Vice President Joe Biden held a closed-door session with Democratic members in which he called for party members to support the Senate bill despite their own concerns over elements of the bill.

Many liberal Democrats think the threshold the bill set for tax increases was too high. But House Minority Leader Nancy Pelosi (D-San Francisco) categorized the bill as “gigantic progress,” and called for Republicans to give it an up-or-down vote.

“Up until now, our speaker has said when the Senate acts, we will have a vote in the House,” Pelosi said.

–Los Angeles Times

 

WASHINGTON (CNN) — If a Senate deal to avert the fiscal cliff becomes law, all but a sliver of the U.S. population will avoid higher tax rates, some key issues will be put off for two months, and President Barack Obama will have ceded ground on a central promise of his re-election campaign.

The deal, which passed the Democratic-controlled Senate in an overwhelming 89-8 vote in the middle of the night, would maintain tax cuts for individuals earning less than $400,000 and couples earning less than $450,000. Technically, it would reinstate cuts that expired at midnight.

It would also mark the first time in two decades that tax rates jump for the wealthiest Americans.

The bill faces an uncertain future in the Republican-controlled House, which convenes at noon. Some GOP lawmakers, including Reps. Phil Gingrey of Georgia and and Tim Huelskamp of Kansas, told CNN Tuesday that they won’t support the bill.

“It’s taxing, and still taxing, small businessmen and women, and I don’t like that at all,” Gingrey said, referring to some small business owners who would be among those whose tax rates rise.

It’s the opposite argument of some Democrats who oppose the bill. Sen. Tom Harkin, D-Iowa, complained that the deal “makes tax benefits for high-income earners permanent, while tax benefits designed to help those of modest means and the middle class are only extended for five years.”

The bill extends certain tax breaks — such as the one for college tuition — for five years, while making new tax rates permanent.

But it goes squarely against something Obama has long vowed: That tax rates will go up for the top-earning 2% of Americans, including those with household income above $250,000.

“What I’m not going to do is to extend Bush tax cuts for the wealthiest 2% that we can’t afford and, according to economists, will have the least positive impact on our economy,” the president said at a news conference in November, after being asked by CNN why Americans should believe he would not “cave again this time” by allowing those Bush-era tax cuts to be extended.

When asked whether closing loopholes instead of raising rates would be satisfactory, the president responded, “when it comes to the top 2%, what I’m not going to do is to extend further a tax cut for folks who don’t need it, which would cost close to a trillion dollars. And it’s very difficult to see how you make up that trillion dollars, if we’re serious about deficit reduction, just by closing loopholes in deductions. You know, the math tends not to work.”

The deal passed by the Senate would cap itemized deductions for individuals making $250,000 and for married couples making $300,000.

Raising the threshold for higher tax rates to $400,000 shrinks the number of Americans affected. While nearly 2% of filers have adjusted gross incomes over $250,000, only 0.6% have incomes above $500,000, according to the Tax Policy Center.

Still, in a written statement early Tuesday, the president held on to the 98% figure he has so often touted.

The deal “protects 98% of Americans and 97% of small business owners from a middle class tax hike,” he said. “While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay.”

The president also acknowledged, “There’s more work to do to reduce our deficits, and I’m willing to do it. But tonight’s agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans.”

It’s the reality of compromise: If something does pass, Democrats, Republicans and the White House will walk away with only part of what they want, and some things they don’t.

“Glad it’s over,” said Senate Majority Leader Harry Reid, D-Nevada, after the vote, just a couple of hours after the East Coast rang in the new year. “We’ll see if the Republicans in the House can become functional instead of dysfunctional.”

A statement from House leadership made no promises.

“Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members — and the American people — have been able to review the legislation,” the statement said.

A vote could come as early as New Year’s Day. The House is scheduled to convene at noon.

Sen. John Hoeven, R-North Dakota, was hopeful the House will follow suit.

“The vote was 89 to 8. Bipartisan vote. 89 votes,” he said. “I think it sends a strong message and I think it will be approved by the House.”

What the package proposes:

Under the Senate package:

– Taxes would stay the same for most Americans. But they will increase for individuals making more than $400,000 and couples making more than $450,000. For them, it will go from the current 35% to the Clinton-era rate of 39.6%.

– Itemized deductions would be capped for those making $250,000 and for married couples making $300,000.

– Taxes on inherited estates will go up to 40% from 35%.

– Unemployment insurance would be extended for a year for 2 million people.

– The alternative minimum tax — a perennial issue — would be permanently adjusted for inflation.

– Child care, tuition and research and development tax credits would be renewed.

– The “Doc Fix” — reimbursements for doctors who take Medicare patients — will continue, but it won’t be paid for out of the Obama administration’s signature health care law.

– A spike in milk prices will be avoided. Agriculture Secretary Tom Vilsack said milk prices would have doubled to $7 a gallon because a separate agriculture bill had expired.

What’s not addressed

While the package provides some short-term certainty, it leaves a range of big issues unaddressed.

It doesn’t mention the debt ceiling, and temporarily puts off for two months the so-called sequester — a series of automatic cuts in federal spending that would have taken effect Wednesday. It would have reduced the budgets of most agencies and programs by 8% to 10%.

This means that, come late February, Congress will have to tackle both those thorny issues.

“We’re going to have to deal with the sequester, that’s true,” said Sen. Max Baucus, D-Montana, “but look, this is better than nothing.”

Reid said the agreement was a win for average Americans.

“I’ve said all along that our most important priority was to protect the middle class families,” he said. “This legislation does that.”

And maybe a bit more.

According to the U.S. Census Bureau, median household income in 2011 was $50,054, which is well below the tax cut threshold approved by the Senate.

Senate Minority Leader Mitch McConnell, R-Kentucky, praised the effort, but said it shouldn’t have taken so long to get an agreement.

“We don’t think taxes should be going up on anyone but we all knew that if we did nothing they would be going up on everyone today,” he said. “We weren’t going to let that happen.”

If the bill doesn’t pass:

There’s a lot at stake.

If the House doesn’t act and the Bush administration’s 2001 and 2003 tax cuts expire, broad tax increases will kick in, as will $110 billion in automatic cuts to domestic and military spending.

The nonpartisan Congressional Budget Office has predicted the combined effect could dampen economic growth by 0.5%, possibly tipping the U.S. economy back into a recession and driving unemployment from its current 7.7% back over 9%.

But if tax-averse House Republicans approve the bill Tuesday — when taxes have technically gone up — they can argue they’ve voted for a tax cut to bring rates back down, even after just a few hours. That could bring some more Republicans on board, one GOP source said.

But Gingrey, speaking Tuesday to CNN, said he does not believe his constituents will see it that way.

He’s concerned they will see it as “just more smoke and mirrors, and Congress pulls these stunts all the time,” Gingrey said. “Putting off the sequester for two months, kicking that can down the road yet again… this bill, as I see it so far, looks like it’s all about raising revenue, but very little, if anything, about cutting spending.”

Concerns persist:

The White House budget office noted in September that sequestration was designed during the 2011 standoff over raising the federal debt ceiling as “a mechanism to force Congress to act on further deficit reduction” — a kind of doomsday device that was never meant to be triggered. But Congress failed to substitute other cuts by the end of 2012, forcing the government to wield what the budget office called “a blunt and indiscriminate instrument.”

In its place, the Senate plan would use $12 billion in new tax revenue to replace half the expected deficit reduction from the sequester and leave another $12 billion in spending cuts, split half-and-half between defense and domestic programs.

Despite the progress, the White House cautioned that deficit reduction still requires more work.

“But tonight’s agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans,” Obama said.

Conservative lobbyist Grover Norquist, whose Americans for Tax Reform group pushes candidates to sign a pledge never to raise taxes, said the plan “right now, as explained” would preserve most of the Bush tax cuts and wouldn’t violate his group’s pledge.

“Take the 84% of your winnings off the table,” Norquist told CNN. “We spent 12 years getting the Democrats to cede those tax cuts to the American people. Take them off the table. Then we go back and argue about making the tax cuts permanent for everyone.”

But Robert Reich, who served as labor secretary in the Clinton administration, said the $450,000 threshold “means the lion’s share of the burden of deficit reduction falls on the middle class, either in terms of higher taxes down the road or fewer government services.” In addition, he said, the plan does nothing to raise the federal debt ceiling just as the federal government bumps up against its borrowing limit.

And that, Arizona GOP Sen. John McCain told CNN, is likely to be “a whole new field of battle.”

“We just added 2.1 trillion in the last increase in the debt ceiling, and spending continues to go up,” McCain said. “I think there’s going to be a pretty big showdown the next time around when we go to the debt limit.”

(CNN) — Senate leaders and the White House struck a last-minute deal to avert the feared fiscal cliff Monday night, with Vice President Joe Biden headed to the Capitol Hill to pitch the plan to fellow Democrats.

“Happy New Year,” Biden, who became the Democratic point man in the talks, told reporters. “Did you think we would be here New Year’s Eve?”

But the House of Representatives went home long before midnight, meaning nothing will get through Congress before the combination of tax increases and spending cuts Congress has been scrambling to head off starts to kick in.

A source familiar with the deal told CNN that the Senate proposal would put off the cuts for two months and keep the expiring Bush-era tax cuts for individuals earning less than $400,000 or couples earning less than $450,000. Taxes on inherited estates over $5 million will go up, and that exemption will be indexed for inflation.

Biden had been in negotiations with Senate Minority Leader Mitch McConnell, R-Kentucky, since Sunday afternoon. Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats, agreed to the plan in calls with President Barack Obama, a Democratic source said Monday night.

Economists warn the one-two punch of tax increases and spending cuts could push the U.S. economy back into recession and drive unemployment back over 9% by the end of 2013. Obama had chided lawmakers earlier Monday and warned that battles over spending still loomed, hitting a nerve among several Republicans in the Senate.

“They are close, but they’re not there yet,” Obama said. “And one thing we can count on with respect to this Congress is that if there is even one second left before you have to do what you’re supposed to do, they will use that last second.”

Obama said the plan on the table would prevent a tax increase for the overwhelming majority of Americans, extend the child tax and tuition credits for families, extend credits for clean-energy companies and extend unemployment benefits for 2 million people. But he said lawmakers still have to figure out how to mitigate the impact of the planned cuts.

And he warned that if Republicans think they can get future deficit reduction solely through spending cuts “that will hurt seniors, or hurt students, or hurt middle-class families without asking also equivalent sacrifice from millionaires or companies with a lot of lobbyists … they’ve got another think coming.”

That irked Republican senators who have been grappling for a deal with the Democratic majority in that chamber. Sen. Bob Corker, R-Tennessee, called the president’s comments “very unbecoming of where we are at this moment” and added, “My heart’s still pounding.”

“I know the president has fun heckling Congress,” Corker said. “I think he lost probably numbers of votes with what he did.”

And Sen. John McCain said Obama “sent a message of confrontation to Republicans” with his remarks.

“People have to wonder whether the president really wants issue resolved, or is it in his short-term political benefit for us to go over the cliff,” said McCain, R-Arizona.

A source familiar with the negotiations said the proposals under discussion would generate $600 billion by ending the Bush-era tax cuts on individuals with incomes above $400,000 and families over $450,000. The top tax rate would return to 39.6% from its current 35%.

The deal would also increase the estate tax to 40% from the current 35% level and cap itemized deductions for individuals with incomes above $250,000 and household income over $300,000, the source said.

In the House, GOP sources said there’s little practical difference in settling the issue Monday night versus Tuesday. But if House Republicans approve the bill on Tuesday — when taxes have technically gone up — they can argue they’ve voted for a tax cut to bring rates back down, even after just a few hours, GOP sources said. That could bring some more Republicans on board, one source said.

Earlier, a GOP source told CNN that the sticking point in talks was $24 billion in spending cuts being sought by Republicans in place of the $110 billion in automatic spending now set to take effect.

As Monday’s deadline drew nigh, federal agencies were preparing for the possibility of furloughing workers. At the Pentagon, a Defense Department official said as many as 800,000 civilian employees could be forced to take unpaid days off as the armed services face an expected $62 billion in cuts in 2013 — about 12% of its budget.

Those workers perform support tasks across the department, from maintaining aircraft and weapons systems to processing military payrolls and counseling families. The Pentagon believes it can operate for at least two months before any furloughs are necessary, but has to warn its civilian workforce that furloughs could be coming, the official said.

The White House budget office noted in September that sequestration was designed in 2011 as “a mechanism to force Congress to act on further deficit reduction” — a kind of doomsday device that was never meant to be triggered. But Congress failed to substitute other cuts by the end of 2012, forcing the government to wield what the budget office called “a blunt and indiscriminate instrument.”

Despite Obama’s backing, one leading Senate Democrat warned a deal could run into trouble — not only from House Republicans who have long opposed any tax increase, but also from liberals in the Senate who oppose allowing more high-income households to escape a tax increase.

“No deal is better than a bad deal, and this looks like a very bad deal the way this is shaping up,” Sen. Tom Harkin, D-Iowa, said.

Conservative lobbyist Grover Norquist, whose Americans for Tax Reform pushes candidates to sign a pledge never to raise taxes, said the plan “right now, as explained” would preserve most of the Bush tax cuts and wouldn’t violate his group’s pledge.

“Take the 84% of your winnings off the table,” Norquist told CNN. “We spent 12 years getting the Democrats to cede those tax cuts to the American people. Take them off the table. Then we go back and argue about making the tax cuts permanent for everyone.”

But Robert Reich, who served as labor secretary in the Clinton administration, said the $450,000 threshold “means the lion’s share of the burden of deficit reduction falls on the middle class, either in terms of higher taxes down the road or fewer government services.” In addition, he said, the plan does nothing to raise the federal debt ceiling just as the federal government bumps up against its borrowing limit.

And that, McCain told CNN, is likely to be “a whole new field of battle.”

“We just added 2.1 trillion in the last increase in the debt ceiling, and spending continues to go up,” McCain said. “I think there’s going to be a pretty big showdown the next time around when we go to the debt limit.”

(CNN) — The feared fiscal cliff was at hand Monday night, with senators discussing a deal struck by their leaders and no vote in the House of Representatives scheduled before a combination of tax increases and spending cuts starts to kick in.

After a day of negotiations among Senate leaders and the White House, Vice President Joseph Biden headed into a meeting with Senate Democrats on Monday night to pitch a deal to avert at least part of that combination, a Democratic source said. Arizona Sen. Jon Kyl, the Republican whip, told reporters earlier that a “notional agreement” had been reached, but was “not necessarily formalized.”

But the House of Representatives adjourned without voting on anything — and earlier remarks by President Barack Obama that chided Congress and warned that battles over spending still loomed, hit a nerve among several Republicans in the Senate.

“They are close, but they’re not there yet,” Obama said. “And one thing we can count on with respect to this Congress is that if there is even one second left before you have to do what you’re supposed to do, they will use that last second.”

The Bush administration’s 2001 and 2003 tax cuts are set to expire at midnight Monday, and steep spending cuts set into law during the 2011 standoff over raising the federal debt ceiling start to kick in on Wednesday. Economists warn that could push the U.S. economy back into recession and drive unemployment back over 9% by the end of 2013.

Obama said the plan on the table would prevent a tax increase for the overwhelming majority of Americans, extend the child tax and tuition credits for families, extend credits for clean-energy companies and extend unemployment benefits for 2 million people. But he said lawmakers still have to figure out how to mitigate the impact of the planned cuts.

And he warned that if Republicans think they can get future deficit reduction solely through spending cuts “that will hurt seniors, or hurt students, or hurt middle-class families without asking also equivalent sacrifice from millionaires or companies with a lot of lobbyists … they’ve got another think coming.”

That irked Republican senators who have been grappling for a deal with the Democratic majority in that chamber. Sen. Bob Corker, R-Tennessee, called the president’s comments “very unbecoming of where we are at this moment” and added, “My heart’s still pounding.”

“I know the president has fun heckling Congress,” Corker said. “I think he lost probably numbers of votes with what he did.”

And Sen. John McCain said Obama “sent a message of confrontation to Republicans” with his remarks.

“People have to wonder whether the president really wants issue resolved, or is it in his short-term political benefit for us to go over the cliff,” said McCain, R-Arizona.

A source familiar with the negotiations said the proposals under discussion would generate $600 billion by ending the Bush-era tax cuts on individuals with incomes above $400,000 and families over $450,000. The top tax rate would return to 39.6% from its current 35%.

The deal would also increase the estate tax to 40% from the current 35% level and cap itemized deductions for individuals with incomes above $250,000 and household income over $300,000, the source said.

In the House, GOP sources said there’s little practical difference in settling the issue Monday night versus Tuesday. But if House Republicans approve the bill on Tuesday — when taxes have technically gone up — they can argue they’ve voted for a tax cut to bring rates back down, even after just a few hours, GOP sources said. That could bring some more Republicans on board, one source said.

Earlier, a GOP source told CNN that the sticking point in talks was $24 billion in spending cuts being sought by Republicans in place of the $110 billion in automatic spending now set to take effect.

As Monday’s deadline drew nigh, federal agencies were preparing for the possibility of furloughing workers. At the Pentagon, a Defense Department official said as many as 800,000 civilian employees could be forced to take unpaid days off as the armed services face an expected $62 billion in cuts in 2013 — about 12% of its budget.

Those workers perform support tasks across the department, from maintaining aircraft and weapons systems to processing military payrolls and counseling families. The Pentagon believes it can operate for at least two months before any furloughs are necessary, but has to warn its civilian workforce that furloughs could be coming, the official said.

The White House budget office noted in September that sequestration was designed in 2011 as “a mechanism to force Congress to act on further deficit reduction” — a kind of doomsday device that was never meant to be triggered. But Congress failed to substitute other cuts by the end of 2012, forcing the government to wield what the budget office called “a blunt and indiscriminate instrument.”

Despite Obama’s backing, one leading Senate Democrat warned a deal could run into trouble — not only from House Republicans who have long opposed any tax increase, but also from liberals in the Senate who oppose allowing more high-income households to escape a tax increase.

“No deal is better than a bad deal, and this looks like a very bad deal the way this is shaping up,” Sen. Tom Harkin, D-Iowa, said.

Conservative lobbyist Grover Norquist, whose Americans for Tax Reform pushes candidates to sign a pledge never to raise taxes, said the plan “right now, as explained” would preserve most of the Bush tax cuts and wouldn’t violate his group’s pledge.

“Take the 84% of your winnings off the table,” Norquist told CNN. “We spent 12 years getting the Democrats to cede those tax cuts to the American people. Take them off the table. Then we go back and argue about making the tax cuts permanent for everyone.”

But Robert Reich, who served as labor secretary in the Clinton administration, said the $450,000 threshold “means the lion’s share of the burden of deficit reduction falls on the middle class, either in terms of higher taxes down the road or fewer government services.” In addition, he said, the plan does nothing to raise the federal debt ceiling just as the federal government bumps up against its borrowing limit.

And that, McCain told CNN, is likely to be “a whole new field of battle.”

“We just added 2.1 trillion in the last increase in the debt ceiling, and spending continues to go up,” McCain said. “I think there’s going to be a pretty big showdown the next time around when we go to the debt limit.”

obama-cliffWASHINGTON (CNN) — An agreement to avert the fiscal cliff of automatic tax increases and spending cuts appeared “within sight,” President Barack Obama said Monday, but lawmakers said nothing will pass Congress before a midnight deadline.

Senators were “very, very close” to a deal, having worked out an agreement on taxes, Senate Minority Leader Mitch McConnell said Monday afternoon. But the House of Representatives won’t vote on any plans to avert the fiscal cliff on Monday, leaders have told members.

At the White House, Obama said the deal now on the table would prevent a tax increase for the overwhelming majority of Americans, extend the child tax and tuition credits for families as well as those for clean-energy companies, and extend unemployment benefits for 2 million people, Obama said.

But Obama did not sound hopeful a deal was imminent, saying he expected to remain at the White House for New Year’s Eve as a midnight deadline neared.

“They are close, but they’re not there yet,” Obama said. “And one thing we can count on with respect to this Congress is that if there is even one second left before you have to do what you’re supposed to do, they will use that last second.”

The president urged supporters to “Keep the pressure on over the next 12 hours or so.” And he cautioned that even if lawmakers can head off an increase in taxes for middle-class families as the tax cuts enacted under the Bush administration expire, they still have to figure out how to mitigate the possible damage from sharp spending cuts that are scheduled to take effect in 2013.

But his chiding of lawmakers grappling for a deal drew anger from Republicans. Sen. Bob Corker, R-Tennessee, called the president’s comments “very unbecoming of where we are at this moment” and added, “My heart’s still pounding.”

“I know the president has fun heckling Congress,” Corker said. “I think he lost probably numbers of votes with what he did.”

“He didn’t lose mine. I am not that way,” he said. “I am going to look at the substance. But it is unfortunate that he doesn’t spend as much time working on solving problems as he does with campaigns and pep rallies.”

There’s little practical difference in settling the issue Monday night versus Tuesday, House GOP sources said. But if House Republicans approve the bill on Tuesday — when taxes have technically gone up — they can argue they’ve voted for a tax cut to bring rates back down, even after just a few hours, GOP sources said.

That could bring some more Republicans on board, one source said.

“I wouldn’t overestimate it, but a handful may be the difference we need,” the source said.

A GOP source told CNN negotiators are “very close” to a deal. The sticking point is $24 billion in spending cuts being sought by Republicans in place of deeper cuts that would automatically take effect at midnight, according to the source.

“It’s like looking under the cushions at this point,” the source said. “If we can’t find that at this point, we should pack this place up.”

A congressional Democratic source agreed that spending cuts are the main hold up now.

Read more: Why your paycheck is getting smaller, no matter what

The proposal under discussion Monday afternoon called for rolling back tax rates on the highest-income earners to Clinton-era levels, increasing the estate tax rate, extending unemployment benefits and potentially putting off the $110 billion in automatic spending cuts called for in the legislation that created the cliff, according to sources close to the process.

A source familiar with the negotiations said the proposal under discussion would generate $600 billion in revenues by ending the Bush-era tax cuts on individuals with incomes above $400,000 and families over $450,000. Their tax rate would be 39.6%, the same as it was in 2000 during President Bill Clinton’s presidency. The top income rate is currently 35%.

The deal would also increase the estate tax to 40% from the current 35% level and cap itemized deductions for individuals with incomes above $250,000 and household income over $300,000, the source said.

In addition to the tax proposals, also under discussion is a proposal to delay the $110 billion in automatic cuts in domestic and military spending due over the next nine months, a draconian approach called sequester that was created by Congress to address the impact of high deficits and debt on the U.S. economy.

Republicans want a three-month delay while Democrats seek to forestall the cuts by one year, a Democratic source told CNN. Another Democratic source said the proposed three-month delay “can’t pass.”

Despite Obama’s backing, one leading Senate Democrat warned the deal could run into trouble — not only from House Republicans who have long opposed any tax increase, but also from liberals in the Senate who oppose allowing more high-income households to escape a tax increase.

“No deal is better than a bad deal, and this looks like a very bad deal the way this is shaping up,” Sen. Tom Harkin, D-Iowa, said.

If nothing gets done before Monday at midnight, broad taxes hikes will kick in as the Bush-era cuts expire and the deep spending cuts will begin to take hold.

The nonpartisan Congressional Budget Office has predicted the combined effect could dampen economic growth by 0.5%, possibly tipping the U.S. economy into a recession and driving unemployment from its current 7.7% back over 9%.

The Senate’s top Democrats and Republicans are working out a possible compromise to avoid the fiscal cliff one day before the deadline.

WASHINGTON (CNN) — A political summit on Friday at the White House left it to the Senate’s top Democrat and Republican to work out a possible compromise to avoid the fiscal cliff, participants said.

Senate Majority Leader Harry Reid, D-Nevada, told reporters that the next 24 hours would be “very important” toward efforts to lessen the harshest impacts of the fiscal cliff, a combination of automatic tax hikes and deep spending cuts due to take effect at the start of the new year.

“Whatever we come up with is going to be imperfect. Some people aren’t going to like it, some people are going to like it less,” Reid said on the Senate floor after the meeting with President Barack Obama, other top congressional leaders and senior administration officials.

Reid’s Republican counterpart, Sen. Mitch McConnell of Kentucky, expressed hope that he and Reid could arrive at a proposal to present to their respective caucuses “as early as Sunday.”

Obama declared himself “modestly optimistic” that the Senate leaders can forge an agreement, but he warned that “nobody’s going to get 100% of what they want.”

In a statement to reporters, Obama also said that absent a deal, his latest proposal should be put to a vote, adding that he believed it would pass both the House and Senate with bipartisan support.

Congress has three days to come up with a solution before the end of 2012 brings the tax increases and spending cuts of the fiscal cliff.

Diminished hopes for a substantial agreement in Washington depressed stock indexes on Wall Street this week despite other encouraging news on the economy. Consumer confidence has also softened due to political inaction.

Economists warn that continued stalemate could trigger recession as taxes go up on everyone with the expiration of lower rates from the administration of President George W. Bush, coupled with slashed government spending, including for the military.

The late afternoon White House meeting ran just over an hour and also included House Speaker John Boehner, House Democratic leader Nancy Pelosi, Vice President Joe Biden and Treasury Secretary Timothy Geithner.

Prior to the meeting, a source familiar with the matter said Obama would propose the same framework for a scaled-back agreement that he described last week.

In his later statement, Obama described his plan as holding down tax rates on midde-class Americans — which he describes as family income up to $250,000 — while allowing rates to increase on top income brackets. It also would extend unemployment benefits and “lay the groundwork” for economic growth and deficit reduction.

Friday’s meeting came with the Senate back in town after a Christmas holiday for a rare end-of-year appearance before a new Congress convenes early in the new year. Boehner plans to bring the House back on Sunday.

Earlier in the day, senators from both parties expressed opinions on the negotiations that ranged from optimism to frustration.

“When the dust settles and everything is said and done, federal individual income taxes are not going to go up on almost all Americans next year,” GOP Sen. Lamar Alexander of Tennessee told reporters.

Democratic Sen. Chuck Schumer of New York told NBC’s “Today” show he was “a little more optimistic today” about reaching a deal.

“Sometimes it’s darkest before the dawn,” Schumer said, noting the renewed engagement by McConnell and Boehner, the top congressional Republicans.

“The fact that (Boehner’s) come back and the four of them are at the table means to me we could come up with some kind of agreement that would avoid the main parts of the fiscal cliff, particularly taxes going up on middle-class people,” he added.

Republican Sen. Bob Corker of Tennessee downplayed the importance of Friday’s meeting on CBS “This Morning,” saying it “feels too much to me like optics to make it look like we’re doing something.”

“This is a total dereliction of duty at every level,” added Corker, who has called for Republicans to compromise on the central issue of allowing tax rates to increase on top income brackets.

“I’ve been very surprised that the president has not laid out a very specific plan to deal with this, but candidly Congress could have done the same and I think the American people should be disgusted,” he said.

On Thursday, McConnell vowed that his side would not “write a blank check for anything Senate Democrats put forward just because we find ourselves at the edge of the cliff.”

Reid, however, argued that Republicans undermined a potentially major agreement over the past two years by refusing to compromise on their opposition to higher tax rates for the wealthy.

The principal dispute continues to be over taxes, specifically the demand by Obama and Democrats to extend most of the tax cuts passed under Bush while allowing higher rates of the 1990s to return on top income brackets.

Obama campaigned for re-election on keeping the current lower tax rates on family income up to $250,000, which he argues would protect 98% of Americans and 97% of small businesses from rates that increase on income above that level.

Republicans oppose any kind of increase in tax rates, and Boehner suffered the political indignity last week of offering a compromise — a $1 million threshold for the higher rates to kick in — that his GOP colleagues refused to support because it raised taxes and had no chance of passing the Senate.

Last Friday, the president proposed the scaled-back agreement that included his call for extending tax cuts on households with incomes up to $250,000, as well as an extension of unemployment insurance.

Reid and Democrats reject the GOP proposals, which would extend all the Bush tax cuts and revamp the spending cuts of the fiscal cliff, calling them insufficient and saying they would shift too much deficit reduction burden on the middle class.

One possibility is the fiscal cliff takes effect and taxes go up in January, then Congress steps in to bring tax rates back down for at least some people — allowing them to say they’re lowering taxes, even if rates for top income brackets are higher in 2013 than they were in 2012.

Obama and Democrats have leverage, based on the president’s re-election last month and Democratic gains in the House and Senate in the new Congress. In addition, polls consistently show majority support for Obama’s position on taxes, and Democrats insist the House would pass the president’s plan with Democrats joined by some Republicans if Boehner allowed a vote on it.

However, anti-tax crusader Grover Norquist has vowed to back primary challenges against Republicans who violate his widely signed pledge not to raise taxes. Even if a deal is reached, Norquist predicts budget showdowns will continue every time the government needs more money to operate.

“There the Republicans have a lot of clout because they can say we’ll let you run the government for the next month, but you’ve got to make these reforms,” he said this week.

On Wednesday, Treasury Secretary Timothy Geithner told Congress the government would reach its borrowing limit at year’s end, but could take steps to create what he called “headroom” for two months or so.

However, Geithner said uncertainty about the fiscal cliff and deficit negotiations make it hard to predict precisely how long government measures to address the situation will last.

The possibility of a fiscal cliff was set in motion over the past two years as a way to force action on mounting government debt.

Now, legislators risk looking politically cynical by seeking to weaken the measures enacted to try to force them to confront tough questions regarding deficit reduction, such as changes to government programs like Social Security, Medicare and Medicaid.

The two sides seemingly had made progress early last week on forging a $2 trillion deficit reduction deal that included new revenue sought by Obama and spending cuts and entitlement changes desired by Boehner.

Obama’s latest offer set $400,000 as the income threshold for a tax rate increase, up from his original plan of $250,000. It also had a new formula for the consumer price index — called chained CPI — that wraps in new assumptions on consumer habits in response to rising prices, such as seeking cheaper alternatives, and would result in smaller benefit increases.

Statistics supplied by opponents say the change would mean Social Security recipients would get $6,000 less in benefits over the first 15 years of chained CPI. Liberal groups have openly challenged the plan, calling it a betrayal of senior citizens who contributed all their lives for their benefits.

Boehner appeared to move on increased tax revenue, including higher rates on top income brackets and eliminating deductions and loopholes. But his inability to rally all House Republicans behind his plan last week raised questions about his role and what comes next.

WASHINGTON  — President Barack Obama and congressional leaders will discuss the looming fiscal cliff impasse Friday at the White House, aiming for a last-minute deal to stave off automatic tax increases and spending cuts.

The 3 p.m. meeting — which will include Obama, Vice President Joe Biden, House Speaker John Boeher, House Minority Leader Nancy Pelosi, Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell — will come days before the deadline to reach a deal, and after another day of Republicans and Democrats blaming each other for the stalemate.

Rick Chambers reports on how what happens in Washington could impact those living in Southern California.

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