Fiscal Cliff talks head toward compromise solution
Talks in Washington to avoid the Fiscal Cliff are continuing against a deadline that expires at midnight local time (6pm NZ time).
Latest reports say White House and Senate Republicans are closing in on a budget compromise that would raise tax rates on couples making more than $US450,000 a year, increase taxes on large inheritances and extend unemployment benefits for a year.
However, with the New Year deadline approaching, negotiators are hung up on how, if at all, to postpone the $US110 billion in spending cuts due to take effect on January 2.
Another aspect of the emerging deal would limit the number of personal exemptions as well as the value of itemised deductions, two restrictions that would kick in at $US250,000 for individuals and $US300,000 for couples. Those limits were abolished as part of the 2001 Bush tax revamp.
In a delayed appearance at the White House, President Obama said negotiators had made "progress" over the past few days toward a deal.
"It appears that an agreement to prevent this New Year's tax hike is within sight, but it's not done," he said. "There are still issues left to resolve but we're hopeful Congress can get it done."
He said negotiators on "the potential agreement" are still struggling to agree on a way to tackle the automatic spending cuts, known as the sequester, that are set to take effect in coming days.
He said the emerging compromise, which is far smaller than policy makers had hoped to achieve, would keep taxes from increasing on the middle class and lay a foundation for larger deficit reduction in the future.
"If Republicans think I will finish the job of deficit reduction through spending cuts alone... then they've got another thing coming," the president said. "That's not how it's going to work. We've got to do this in a balanced and responsible way."
Failure to reach an agreement between the Republican-dominated House and Democratic-controlled Senate will trigger tax increases for most Americans, as well as the first tranche of spending cuts that run until September 30.
Meanwhile, the talks are centred on efforts by Senate Minority Leader Mitch McConnell, a Republican, and Vice President Joe Biden to come up with a compromise solution.
Other fundamental divisions remain: the Republicans want any tax increase to go toward reducing the deficit, while the Democrats want any increased tax revenue to pay for items likely to be hit by spending cuts, such as extending unemployment benefits.
The short-term fate of the US economy rests on the outcome as well as the reputation of the government, which have been tarnished by seemingly endless series of negotiations that have run over two weeks without success.