US President Barack Obama and congressional leaders were set to meet on Friday for the first time since November with no sign of progress in resolving their differences over the federal budget and low expectations for a fiscal cliff deal before January 1.
Instead, members of Congress are increasingly looking at the period immediately after the December 31 deadline to come up with a retroactive fix to avoid the steep tax hikes and sharp spending cuts that economists have said could plunge the country into another recession.
With taxes on all Americans set to rise when the low tax rates established by President George W Bush expire on December 31, lawmakers would be able to come back in January and take a more politically palatable vote on cutting some of the tax rates.
Pessimism on the deadline being met was shared by many market analysts. Noting that the US House of Representatives wasn’t even convening until Sunday, Daiwa Securities economist Emily Nicols said “markets still expect a deal even if it does go into January”.
The new factor in the mix was involvement by Republican Senate Minority Leader Mitch McConnell of Kentucky, who said on Thursday he had held conversations with Obama and expected a new proposal from the president that he would consider.
The White House spent much of Thursday stifling expectations for any new offer from Obama, beyond the limited fallback plan he outlined in vague terms on December 21, which would protect what he described as “middle class Americans” from the tax hikes, extend unemployment insurance and lay the “groundwork for further work” on deficit reduction and tax reform.
The major sticking point is Republican opposition to tax hikes on anyone, particularly in the absence of heavy cuts in spending for so-called entitlement programs such as Medicare and Medicaid, the government-run health programmes for senior citizens and the poor.
Democrats in Congress want to keep lower tax rates for most Americans but raise them on those earning above $250,000 a year.
“The wealthy have got to kick in,” said Democratic Senator Debbie Stabenow of Michigan on Friday morning on CNN. “The tough part is in the House, where they have taken this very extreme position” of “protecting the wealthy at all costs”.
