President Obama 'modestly optimistic' of deal on 'fiscal cliff'
Action to avoid US economy going over 'fiscal cliff' shifts to Senate, but time is running out
The search for an elusive fiscal deal aimed at avoiding blanket tax hikes and drastic spending cuts was in the hands of US Senate leaders yesterday after President Barack Obama brought them together in a bid to move the quest for an accord forward.
Obama and congressional leaders met at the White House on Friday and agreed that Senate Democratic leader Harry Reid and his Republican counterpart, Mitch McConnell, would now take the lead in trying to force an agreement before Tuesday.
The president said Senate Democrats and Republicans would work overtime this weekend to try to head off a US$600 billion time bomb of tax hikes and spending cuts called a "fiscal cliff" before a January 1 deadline.
"We had a constructive meeting today … I'm modestly optimistic that an agreement can be achieved," the president said, as the mood lifted somewhat after earlier pessimism had sparked a Wall Street sell-off.
Any agreement also has to pass the House of Representatives, where there is doubt any deal signed off by the Democratic president would win favour with restive conservatives in the Republican caucus. If Republicans block the move, the White House could argue that Obama's foes saddled middle class Americans with unpopular tax hikes just to protect millionaires.
While each side must for the sake of appearances be seen to be seeking a deal, the easiest way out of the mess might be to allow the economy to go over the cliff, but fix the problem in the first few days of next year.
Under that scenario, Republicans who are philosophically opposed to raising taxes could back a bill to lower the newly raised rates on almost all Americans without formally hiking taxes on anyone.
The president also vented frustration at America's dysfunctional political system when he and lawmakers had to halt their Christmas and New Year holidays after Congress's inability to act well ahead of the deadline.
"Ordinary folks, they do their jobs. They meet deadlines. They sit down and they discuss things and then things happen," Obama said. "The notion that our elected leadership can't do the same thing is mind-boggling to them. It needs to stop."
McConnell said he was "hopeful and optimistic" after the talks, also involving Republican House Speaker John Boehner and the House Democrats' leader, Nancy Pelosi.
An aide to Boehner said the talks focused on "potential options and components for a plan that could pass both chambers of Congress".
Earlier, Wall Street picked up negative signs ahead of the talks.
The Dow Jones Industrial Average dropped 158.20 points or 1.21 per cent, as Washington's perennial gridlock threatened to deal what Obama described as a "politically self-inflicted wound" to the economy.