Washington, Dec. 31 (Reuters): President Barack Obama said this afternoon that it appeared a deal on the "fiscal cliff" was within sight but it was not complete yet.
"Today it appears that an agreement to prevent this New Year's tax hike is within sight, but it is not done," Obama said at the White House ahead of the midnight deadline. "There are still issues left to resolve, but we're hopeful that Congress can get it done, but it's not done."
Obama expressed regret that the work of his administration and Congress won't produce a "grand bargain" to address the country's chronic deficit spending.
The frank address suggested that a fallback deal being negotiated in Congress might start to solve America's budget and deficit problems in several steps rather than in a big, comprehensive deal that he had hoped for. Officials familiar with the negotiations said an agreement still under negotiation would address the biggest issue by raising tax rates on family incomes over $450,000 a year.
Leaders were hammering out a last-minute deal to avoid the "fiscal cliff" but it was still unclear if rank-and-file lawmakers would back the agreement, particularly those in the Republican-led House of Representatives.
A deal to avert the fiscal crisis was said to be in the works in the Senate that would raise tax rates on household incomes above $450,000, said a source familiar with the talks. The agreement would permanently extend the lower tax rates for those below the $450,000 cut-off. These lower tax rates have been in place for all taxpayers since the Bush administration.
The President's statement came as Congress faced a race against time to stop America teetering off the "fiscal cliff" of automatic tax hikes and huge federal spending cuts.
Negotiations involving Joe Biden, the Vice-President, and Mitch McConnnell, the Senate Republican leader, appeared to offer the last hope for avoiding the across-the-board tax increases and draconian cuts in the federal budget that will be triggered at the start of the new year by a deficit-reduction law enacted in August 2011.
Obama had warned yesterday that the markets would deliver a punishing verdict if Washington politicians fail to reach a deal to prevent America falling back into recesssion.
Senators were sent home last night and told there was still significant distance between the parties, but negotiations continued between Democrat and Republican leaders.
Without a deal, Bush-era tax cuts will expire at midnight and hit the pay packets of millions of workers. At the same time, brutal cuts will slash domestic and defence spending, stunting America's recovery.
"It is going to be very hard for the economy to sustain its current growth trends if suddenly we have a huge bite taken out of the average American's pay cheque," Obama told NBC.
As both parties scrambled to find a compromise before the New Year deadline, Obama claimed the Republicans would take the blame if the talks ended in failure.
Markets have fallen for five consecutive days and the President warned of worse to come. "If people start seeing that on January 1 this problem still hasn't been solved, that we haven't seen the kind of deficit reduction that we could have had ... if they say that people's taxes have gone up, which means consumer spending is going to be depressed, then obviously that's going to have an adverse reaction in the markets".
He claimed that his deal to reduce America's $16.4-trillion deficit ' more cuts in welfare spending and an increase in tax rates for the richest 2 per cent ' was so fair that it made some Democrats mad at him. He portrayed Republicans as having a tough time saying "yes" to reasonable demands.
Setting some of his priorities for a second term ' immigration reform, energy production and gun control ' he said that stopping the tax increase for middle-class Americans was the most important task.
The weekend proved to a frustrating game of thrust and parry. "Start big and get skinny," was how one Republican senator billed his side's overblown negotiating tactic of introducing a last-minute demand on changing the inflation measure used to calculate social security payments.
The demand froze negotiations all yesterday until it was withdrawn late in the day.
Even if a deal is cobbled together today, proper plans for the US deficit are not on the table. Plans to cut it by $3 to $4 trillion in 10 years are not part of the discussions, which are now simply aimed at a stopgap solution. As aides shuttled back and forth, a deal hinged on whether the Republicans would swallow Obama's insistence on tax rises for the wealthiest.