Fiscal cliff negotiations

Fiscal Cliff: Eleventh-hour tax deal on table

Final offer ... Barack Obama. Photo: AP

the Age,

30 December, 2012

THE US President, Barack Obama, and Senate leaders are on the verge of an agreement that would let taxes rise on the wealthiest households while protecting the vast majority of Americans from tax rises set to hit next month.

The development on Friday evening marked a breakthrough after weeks of paralysis. After meeting Mr Obama at the White House, the Senate majority leader, Harry Reid, a Democrat like the President, and its minority leader, Mitch McConnell, a Republican, said they would work through the weekend in the hope of drafting a fiscal cliff agreement they could present to their colleagues on Sunday afternoon.

As the Senate began haggling over critical details, the emerging deal faced an uncertain fate in the House of Representatives, where the Republican Speaker, John Boehner, failed a week ago to persuade his adamantly anti-tax caucus to let taxes rise even for millionaires.

On Friday, Mr Obama pronounced himself ''modestly optimistic'' at a brief news conference at the White House. The ordinarily dour Senator McConnell said he was ''hopeful and optimistic''. And Senator Reid immediately began preparing Senate Democrats for what could be a difficult vote.

''Whatever we come up with is going to be imperfect. Some people aren't going to like it. Some people will like it less,'' Senator Reid said in the Senate. But ''we're going to do the best we can for … the country that's waiting for us to make a decision.''

Sources said the developing package would protect nearly 30 million taxpayers from paying the alternative minimum tax for the first time and keep unemployment benefits flowing to 2 million people who would otherwise be cut off next month.

But the two sides were still at odds over a crucial issue: how to define the wealthy. 

Mr Obama has proposed letting tax rates rise on income over $US250,000 ($241,000) a year. Senate Republicans have in recent days expressed interest in a compromise that would raise that threshold to $US400,000 a year, an offer Mr Obama made to Mr Boehner before the Speaker abruptly broke off negotiations last week.

There was no agreement on how to handle roughly $US100 billion in automatic spending cuts that are scheduled for the Pentagon and other departments in the fiscal year that ends in September.

Mr Obama and Senate leaders have concluded time is too short to work on a package of significant cuts to federal health and retirement programs, the top priority of many Republicans.

Without big changes to those programs, the deal will not include an agreement to raise the limit on government borrowing, setting up another fierce battle in the next two months.

Senators Reid and McConnell pledged to work together to craft a package that could win significant bipartisan support.

''I believe such a proposal could pass both houses with bipartisan majorities as long as those leaders allow it to actually come to a vote,'' Mr Obama said.

If that failed, Mr Obama said, he had asked Senator Reid to press ahead with a bill to keep the President's campaign promise to raise taxes on income greater than $US250,000 and extend benefits for the long-term unemployed.