Down to the wire and no deal yet
Washington - After a tortured day of bargaining, setbacks and speech-making, Republicans and Democrats had yet to reach agreement late Sunday to avert the "fiscal cliff."
That left them barely a day to strike a deal, and then pass it through both the Senate and the House.
If that doesn't happen, a set of painful tax hikes will begin to kick in Tuesday, followed soon after by deep cuts in government spending.
On Sunday, there were some small reasons for hope. Negotiations shifted to the capital's two unofficial "closers" - Vice President Joe Biden and Senate Minority Leader Mitch McConnell, R-Ky., who together had resolved past crises over tax hikes and the limit on federal borrowing.
And Republicans also dropped a demand that had briefly become a major sticking point: that Democrats agree to a cost-saving, but politically sensitive, reduction in Social Security benefits. The demand, which involved using a less generous measure of inflation called "chained CPI," would effectively reduce the cost-of-living increases in Social Security benefits over time.
Previously, the GOP had demanded it in exchange for President Barack Obama's request to extend emergency unemployment benefits and cancel deep cuts to the Pentagon and other agency budgets. A Democratic aide close to the talks described the request as a "poison pill."
Even after that demand was set aside, the broader talks remained hung up over the same issues that had stalled them for months. Republicans and Democrats could not agree on how many taxpayers should see their tax rates go up, or about whether to put off a massive $100 billion spending cut called the "sequester."
By the evening, the best thing that Senate Majority Leader Harry Reid, D-Nev., could say about the talks was that there were still talks going on.
"There's still time left to reach an agreement, and we intend to continue negotiations," Reid said on the Senate floor. The chamber will be back in session at 11 a.m. today.
It is a time-honored congressional tradition that any deal must be preceded by hours of doomsaying and pessimism. It's easier to sell a deal, of course, if you've first conditioned your colleagues and the public to fear there will be no deal at all.
On Capitol Hill on Sunday, even lawmakers seemed confused about whether they were watching another round of that familiar late-stage political theater - or if, this time, the pessimism was genuine.
"The two parties are so close that they can't afford to walk away," said Sen. Mike Johanns, R-Neb., calling the fits and starts of this weekend "just normal" posturing in high-level negotiations. "I continue to be optimistic."
But, as optimistic as Johanns was, other senators were gloomy. "I think we're going over the cliff," Sen. Lindsey Graham, R-S.C., wrote on Twitter.
"It just looks like we can't govern," Sen. Kay Bailey Hutchison, R-Texas, said on the Senate floor. She said she was horrified that the last few days before her retirement would be spent on "a complete meltdown."
The fiscal cliff includes the expiration of Bush-era tax cuts, plus the "sequester" that Congress set up during the 2011 debt-ceiling fight. Lawmakers believed, back then, that these cuts were so big, and so broad, that even this gridlocked Congress would have to come back and figure out a better solution.
On Sunday, it looked as if they were wrong.
On Capitol Hill, Sunday's events revealed a new - and troubling - dynamic in these negotiations. It had been assumed, beforehand, that the most difficult part of averting the fiscal cliff would not be striking a deal. Instead, it would be passing that deal through the fractious, GOP-led House.
On Sunday, however, it seemed that the Senate, and the Democrats, would also be an obstacle. Reid said in the afternoon that Democrats were unwilling to respond to an offer that McConnell had delivered to Reid's office Saturday evening - nearly 19 hours earlier.
"I have had a number of conversations with the president, and at this stage we're not able to make a counter-offer," Reid said, adding of McConnell's talks with Biden: "I wish them well."
McConnell, then, reached out to Biden - with whom he brokered deals to end standoffs over tax hikes in late 2010, and over the debt ceiling in August 2011. Aides to McConnell said this was done out of frustration, and their belief that Biden was slow-walking the negotiations.
McConnell presented Reid with his first proposal Friday evening. Democrats then waited until 3 p.m. Saturday to respond and, after a flurry of activity Saturday evening, went dark after receiving McConnell's latest proposal at 7:10 p.m.
Most, if not all, of the GOP proposals sought to change the measure of inflation for Social Security, senior Republican aides said, adding that Democrats had not indicated until Sunday that it was a deal-breaker.
"There's no single issue that remains an impossible sticking point," McConnell said on the Senate floor earlier Sunday. "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."
The abrupt developments in negotiations came after a brief interlude of unusual optimism.
The Democratic aide, who spoke on the condition of anonymity to discuss private negotiations, said Democrats had shown flexibility over the weekend on the major sticking points involving taxes. They had not ruled out maintaining the tax on inherited estates at the current low rate, as Republicans prefer. And they had been open to a deal that would allow taxes to rise on many fewer wealthy households than Obama had proposed. Republicans were seeking tax increases only on income higher than $400,000 or $500,000 a year, while Obama wanted to set the threshold at $250,000 a year.
But Obama was pressing for $30 billion in new spending to keep unemployment benefits flowing to the long-term unemployed, and he wanted to postpone roughly $100 billion in automatic spending cuts set to hit agency budgets next month. In exchange for those items, Democrats said, McConnell continued to insist that Democrats put cuts to Social Security benefits on the table, noting that Obama had offered to do so as part of the big deficit-reduction package he had been negotiating earlier this month with House Speaker John Boehner, R-Ohio.
President Obama has sought to keep the pressure on Congress to act, including taping his appearance for "Meet the Press."
"What Congress needs to do, first and foremost, is to prevent taxes from going up for the vast majority of Americans," Obama said on the show.
Failing to reach a deal for funding the government will slow the economy and harm most families, he said. He has advocated a plan that would raise taxes on the wealthiest 2 percent.
"There is a basic fairness that is at stake in this whole thing that the American people understand and they listened to an entire year's debate about it. They made a clear decision about the approach they prefer, which is a balanced, responsible package.
"They rejected the notion that the economy grows best from the top down. They believe that the economy grows best from the middle class out. And at a certain point it is very important for Republicans in Congress to be willing to say, 'We understand we're not going to get 100 percent. We are willing to compromise in a serious way in order to solve problems.'"
His appearance on the NBC News show was just his second as president.
McConnell's spokesman Don Stewart responded to the president Sunday by saying, "While the president was taping those discordant remarks yesterday, Senator McConnell was in the office working to bring Republicans and Democrats together on a solution."
Negotiators also were trying to resolve a dispute over the estate tax, a critical issue for Republicans who have dubbed it the "death tax" and argue that it punishes people who build successful businesses and family farms.
In an agreement brokered between McConnell and the White House in 2010, estates worth more than $5 million are exempted and taxed above that amount at 35 percent. Republicans want to maintain that structure, while Democrats want to drop the exemption to $3.5 million and raise the rate on larger estates to 45 percent.
Aides close to the talks predicted that the two sides might split the difference, with Democrats swapping the estate tax for the $250,000 threshold.
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