Members of the House of Representatives will not meet their midnight deadline to approve a “fiscal cliff” package, aides told NBC News. Instead, they will vote on a series of non-controversial “suspension bills,” before adjourning for 2012 without a new fiscal agreement.
The decision to leave “fiscal cliff” matters unresolved came despite President Barack Obama’s earlier assessment that a deal was in sight but not yet finalized. The emerging deal he described would raise tax rates on family income over $450,000 a year, increase the estate tax rate and extend unemployment benefits for one year.
“There are still issues left to resolve, but we’re hopeful Congress can get it done,” Obama said at a campaign-style event at the White House. “But it’s not done.”
What was done, officials told NBC News, was a deal to raise the tax rates on family income over $450,000 and individual income over $400,000. Also, estates would be taxed at 40 percent after the first $5 million for an individual and $10 million for a couple, up from 35 percent to 40 percent.
Unemployment benefits would be extended for one year. Without the extension, 2 million people would lose benefits beginning in early January.
Senate Republican leader Mitch McConnell was sanguine Monday afternoon, saying an agreement had been reached on all the tax issues.
“I’m happy to report that the effort has been a successful one and as the President just said, we are very close to an agreement,” he said.
“We will continue to work on finding smarter ways to cut spending, but let’s not let that hold up protecting Americans from the tax hike that will take place in about 10 hours,” he added. “We can do this. We must do this.”
But the sticking point in the negotiations, aides told NBC News, was on deficit reduction, specifically on slashing $24 million in spending from elsewhere in the budget, according to The Associated Press.
“I’m willing to do more, but it’s going to have to be balanced,” Obama said of Monday afternoon of the prospect of a compromise, flanked by cheering middle-class Americans in a White House auditorium.
“It looks like I’m going to be spending New Year’s here (in Washington),” he said, joking that Congress would use every last second to delay a deal. He said his hopes for a larger, more sweeping deal have been dashed and said that such an accommodation was not possible “with this Congress at this time.”
Speaking shortly afterward on the Senate floor, Sen. John McCain said that “at a time of crisis, on New Year’s Eve… you had the president of the United States go over and have a cheerleading, ridiculing-of-Republicans exercise.” The Arizona Republican lost the 2008 presidential race to Obama.
With a midnight deadline rapidly approaching, both sides were still at an impasse over whether to put off automatic, across-the-board spending cuts set to take effect on Jan. 1, and if so, how to pay for that.
And a little more than an hour after Obama spoke, Senate Republican leader Mitch McConnell said it was time to decouple the two major issues.
“We’ll continue to work on smarter ways to cut spending, but let’s not let that hold up protecting Americans from a tax hike that will take place in about ten hours,” he said.
Unless an agreement is reached and approved by Congress by the start of New Year’s Day, more than $500 billion in 2013 tax increases will begin to take effect and $109 billion will be carved from defense and domestic programs.
Though the tax hikes and budget cuts would be felt gradually, economists warn that if allowed to fully take hold, their combined impact — the so-called fiscal cliff — would rekindle a recession.
Urgent talks were continuing Monday afternoon between the White House and congressional Republicans, with longtime negotiating partners Vice President Joe Biden and Senate Republican leader Mitch McConnell at the helm. Underscoring the flurry of activity, another GOP aide said the two men had conversations at 12:45 a.m. and 6:30 a.m. Monday.
An agreement on the proposed deal would also shield Medicare doctors from a 27 percent cut in fees and extend tax credits for research and development, as well as renewable energy.
The deal would also extend for five years a series of tax credits meant to lessen the financial burden on poorer and middle-class families, including one credit that helps people pay for college.
The deal would achieve about $600 billion in new revenue, the officials said.
Despite the movement, Senate Majority Leader Harry Reid warned that time was running out to finalize an agreement.
“Americans are still threatened with a tax hike in just a few hours,” said Reid, D-Nev., as the Senate began an unusual New Year’s Eve session.
Liberal Sen. Tom Harkin, D-Iowa, took to the Senate floor after Reid to warn Democratic bargainers against lowering levies on large inherited estates and raising the income threshold at which higher tax rates would kick in.
“No deal is better than a bad deal. And this look like a very bad deal the way this is shaping up,” said Harkin.
Letting tax rates rise for couples with incomes of $450,000 a year is a concessions for Obama, who campaigned for re-election on a pledge to set the levels at $200,000 for individuals and $250,000 for couples. It also marked a significant concession by Republican leaders who pledged to continue the George W. Bush-era tax cuts for all income earners.
The hope of the White House and lawmakers was to seal an agreement, enact it and send it to Obama for his signature before taxpayers felt the impact of higher income taxes or federal agencies began issuing furloughs or taking other steps required by spending cuts.
Regardless of the fate of the negotiations, it appeared all workers would experience a cut in their take-home pay with the expiration of a two-year cut in payroll taxes.
“This whole thing is a national embarrassment,” Sen. Bob Corker, R-Tenn., said Monday on MSNBC, adding that any solution Congress would swallow at this late stage would be inconsequential. “We still haven’t moved any closer to solving our nation’s problems.”
In a move that was sure to irritate Republicans, Reid was planning — absent a deal — to force a Senate vote Monday on Obama’s campaign-season proposal to continue expiring tax cuts for all but those with income exceeding $200,000 for individuals and $250,000 for couples.
In one sign of movement on Sunday, Republicans dropped a demand to slow the growth of Social Security and other benefits by changing how those payments are increased each year to allow for inflation.
Obama had offered to include that change, despite opposition by many Democrats, as part of earlier, failed bargaining with House Speaker John Boehner, R-Ohio, over a larger deficit reduction agreement. But Democrats said they would never include the new inflation formula in the smaller deal now being sought to forestall wide-ranging tax boosts and budget cuts, and Republicans relented.
“It’s just acknowledging the reality,” Sen. Susan Collins, R-Maine, said of the GOP decision to drop the idea.
As the New Year’s Eve deadline rapidly approached, Democrats and Republicans found themselves at odds over a host of issues, including taxing large inherited estates. Republicans wanted the tax left at its current 35 percent, with the first $5.1 million excluded, while Democrats wanted the rate increased to 45 percent with a smaller exclusion.
The two sides were also apart on how to keep the alternative minimum tax from raising the tax bills of nearly 30 million middle-income families and how to extend tax breaks for research by business and other activities.
Republicans were insisting that budget cuts be found to pay for some of the spending proposals Democrats were pushing.
These included proposals to erase scheduled defense and domestic cuts exceeding $200 billion over the next two years and to extend unemployment benefits. Republicans complained that in effect, Democrats would pay for that spending with the tax boosts on the wealthy.
“We can’t use tax increases on anyone to pay for more spending,” said Sen. Kay Bailey Hutchison, R-Texas