U.S. Senate leaders were hammering out a last-minute deal to avoid the "fiscal cliff" on Monday, but it was still unclear if rank-and-file lawmakers would back the agreement, particularly those in the Republican-led House of Representatives, according to reports.
A deal to avert the fiscal crisis was said to be in the works in the Senate that would raise tax rates on household income above $450,000, said a source familiar with the talks, Reuters reported. 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.
U.S. stocks rose modestly on the news, with the benchmark Dow Jones industrial average up less than one percent at 13,011.
President Barack Obama - who has said that failure to avoid the fiscal crisis would be a self-inflicted wound to the economy by Congress - spoke at 1:30 p.m. ET on Monday.
Fiscal-cliff negotiations between Democrats and Republicans in Washington may have been rebooted Sunday with Social Security no longer a sticking point.
The talks ground to a halt earlier Sunday until Senate Republicans told Senate Democrats they would abandon their demand that any deal must include a new way of calculating inflation via the chained consumer price index, or chained CPI, which over time would have acted to lower payments to beneficiaries of Social Security and similar programs, as reported by the New York Times.
However, the parties are still facing pretty big issues in avoiding the so-called fiscal cliff, which, beginning New Year's Day, would raise taxes on most Americans and automatically initiate sharp decreases in government spending, including big cuts in defense programs.
Earlier Sunday, the negotiations between Senate leaders hit a major setback primarily because of their differences over the chained CPI issue, especially as it relates to Social Security. At that point, the senators appealed to Vice President Joe Biden for aid in breaking the gridlock. Apparently, Biden was able to get the talks moving again.
Senate leaders began scrambling to sort out a fiscal-cliff fix Saturday after President Barack Obama requested in a meeting with Congressional leaders the day before that they work up a bipartisan deal. The president urged Senate Majority Leader Harry Reid, D-Nev., and Senate Minority Leader Mitch McConnell, R-Ky., to find a compromise that would prevent the automatic tax hikes and spending cuts that many economists predict would lead to another recession.
However, Democrats and Republicans failed to reach agreement, with the chained CPI issue's effect on Social Security the first major sticking point to surface Sunday.
Democrats don't want Social Security to be affected by these negotiations, but Republicans demanded Saturday evening that the program's benefits be cut in exchange for the extension of the emergency unemployment benefits the president has requested, the Washington Post reported.
This demand “shocked and disappointed” Reid, aides told the Post.
Meanwhile, McConnell said: “There’s no single issue that remains an impossible sticking point. The sticking point appears to be the willingness and interest or frankly the courage to close the deal. I want everyone to know, I’m willing to get this done, but I need a dance partner.” He apparently is looking to Biden now to be that partner.
Nonetheless, “[W]e’re apart on some pretty big issues,” the New York Times quoted Reid as saying. Apparently, the Times reported, the Republicans are now arguing that Democrats want to raise taxes not to decrease the budget deficit but to increase spending.
Congressional Democrats oppose using the chained CPI to calculate Social Security benefits because they say it would eventually lower payments for the program's beneficiaries.
Obama had offered to consider the chained CPI as part of a grand deficit-reduction package he previously attempted to negotiate with House of Representatives Speaker John Boehner, R-Ohio.
And the president spoke about the chained CPI Sunday on NBC's "Meet the Press," noting that it is "highly unpopular among Democrats" and isn't something endorsed by the seniors' group AARP.
"But in pursuit of strengthening Social Security for the long term, I'm willing to make those decisions," Obama said. "What I'm not willing to do is to have the entire burden of deficit reduction rest on the shoulders of seniors, making students pay higher student-loan rates, ruining our capacity to invest in things like basic research that help our economy grow. Those are the things that I'm not willing to do."
Without a deal, middle-class families and millions of unemployed Americans won't be spared the worst of the fiscal cliff, at least in the short term.
Obama has urged the Senate's Reid to bring a basic package to the floor for an up-or-down vote in the event the fiscal-cliff talks fail. That bill would prevent a middle-class tax increase, extend unemployment insurance, and lay out plans for future deficit reduction.
The bill is Obama’s last-ditch move to fend off some of the most damaging effects of the fiscal cliff, which include an unemployment rate that could shoot up to 9.1 percent, according to Congressional Budget Office projections.
Obama blamed Republicans for the impasse during his appearance on "Meet the Press," saying they are blocking a compromise.
Almost all Americans would be affected should the current tax-rate cuts be allowed to expire at the end of the year as a result of Washington's failure to find common ground in extending at least some of those cuts.
Without action in the nation's capital, taxes would rise on 90 percent of Americans, according to the Tax Policy Center. Middle-income earners who make between $40,000 and $64,000 annually would experience an average increase of about $2,000, the center estimated. Taxes on investments would go up, and the federal estate-tax rate would climb to 55 percent from 35 percent.With no congressional fiscal-cliff votes likely on Sunday, the U.S. financial markets could be in for volatile sessions Monday. In the case of the S&P 500 (INDEXSP:.INX), current futures-market indications (circa midnight EST) suggest the large-capitalization equity index could dip 9.49 points at the stock-market open on New Year's Eve. The index already has closed in the red five consecutive days: No Santa Claus Rally this year!