Senate leaders work to avoid New Year's "fiscal cliff"

Sat Dec 29, 2012 6:51pm EST
 
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By Richard Cowan and Rachelle Younglai

WASHINGTON (Reuters) - Congressional negotiators burrowed into their offices on Saturday to see if they could stop the U.S. economy from falling off of a "fiscal cliff" in just three days when the biggest tax increases ever to hit Americans in one shot are scheduled to begin.

Aides to Senate Majority Leader Harry Reid, a Democrat, and Senate Republican leader Mitch McConnell worked through the day on a possible compromise that would set aside $600 billion in tax increases and across-the-board government spending cuts that are set to kick in next week.

A variety of lower taxes are scheduled to expire at the end of Monday, the last day of the year. If allowed to rise, the approximately $500 billion value of the revenue increases would represent a historic hike when taken together.

The combined punch of the tax increases and spending cuts could push the U.S. economy back into recession.

"We're now at the point where, in just a couple days, the law says that every American's tax rates are going up. Every American's paycheck will get a lot smaller. And that would be the wrong thing to do for our economy," President Barack Obama said in his weekly radio and Internet address, which was broadcast on Saturday.

At midday, McConnell walked into his office on the second floor of the U.S. Capitol. Asked by journalists if he thought his efforts would succeed, McConnell responded: "I hope so."

A source with knowledge of the talks, speaking on condition of anonymity, said: "We are still very far apart with almost no time left on the clock."

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Senate Majority Leader Harry Reid (D-NV) (2nd L) walks with unidentified aides and security to his office at the U.S. Capitol after returning from a meeting with President Barack Obama at the White House in Washington December 28, 2012. REUTERS/Mary Calvert