- The Washington Times - Sunday, December 30, 2012

With hours to go, President Obama and Congress barreled toward the New Year’s Day “fiscal cliff,” trading last-minute offers and narrowing the range of options Sunday, but reaching no deal.

“There’s still significant distance between the two sides,” Senate Majority Leader Harry Reid, Nevada Democrat, announced Sunday evening, though he said there was still time to reach agreement by Monday’s midnight deadline. “We intend to continue negotiations.”

Talks were so broken at one point Sunday that the top Republican negotiator, Sen. Mitch McConnell of Kentucky, bypassed Mr. Reid to speak directly with Vice President Joseph R. Biden.

The blockade seemed to lift somewhat when Republicans dropped their demand to change Social Security’s cost-of-living adjustment formula, and both sides traded offers on the income level at which taxpayers will see an income-tax rate increase and debated what other incentives would be included.

“You can’t win an argument that has Social Security for seniors versus taxes for the rich. So we need to take it off the table,” Sen. John McCain, Arizona Republican, said in explaining why the party decided to forgo demands for entitlement reform.

A deal would have to clear not only the Senate, but also the House, where conservative Republicans hold sway.

In the absence of an agreement, Senate Democrats were preparing to force a vote Monday on their own fallback solution, which would raise taxes on families making more than $250,000, would extend unemployment benefits and could include other party priorities.

But that legislation is unlikely to reach Mr. Obama’s desk, leaving a small window for a deal that could rescue millions of taxpayers from rate increases.

The fiscal cliff is the combination of across-the-board tax increases due Tuesday, followed a day later by $110 billion in automatic spending cuts imposed as a result of last year’s deal to raise the debt ceiling.

Analysts said the combination will plunge the economy into a short, sharp recession, though in the long run the deficit would drop, government debt would return to manageable levels and the economy would be stronger over the next decade.

Earlier Sunday, Mr. Obama and House Speaker John A. Boehner traded blame for the mess.

“They say that their biggest priority is making sure that we deal with the deficit in a serious way, but the way they’re behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected,” Mr. Obama said on NBC’s “Meet the Press” program. “That seems to be their only overriding, unifying theme.”

Mr. Boehner countered that the House has passed bills to cancel the tax cuts and the automatic spending “sequesters,” and that Mr. Obama could have headed off the situation long ago if he had pressured Senate Democrats to send the House a bill.

“Republicans made every effort to reach the ‘balanced’ deficit agreement that the president promised the American people, while the president has continued to insist on a package skewed dramatically in favor of higher taxes that would destroy jobs,” Mr. Boehner said.

Both sides have moved substantially. The Republicans have conceded one of their major principles in agreeing to higher tax rates, while Mr. Obama has said he could accept tax increases beginning at income levels higher than the ones on which he campaigned: $200,000 for individuals and $250,000 for families.

The latest offer from Republicans was to let rates rise on individuals making more than $450,000 and families making more than $550,000, according to Democrats, who countered with rates above the $360,000 and $450,000 levels.

Regardless of what happens with marginal rates, all taxpayers are likely to see at least some tax increases with the expiration of the 2 percentage-point payroll-tax holiday, which was worth about $1,000 to the average taxpayer last year.

It was also unclear Sunday whether any final deal would cancel the other part of the cliff: the $110 billion in automatic spending cuts looming Wednesday.

Republicans said Democrats wanted to use the money from higher tax rates to cancel the cuts and to cover new unemployment-benefit spending, which would mean the deficit wouldn’t go down at all and defeat the purpose of a deal on taxes.

“Every Reid-Obama proposal this weekend raises taxes only to usher in more spending. They don’t cut deficit and debt by one penny,” said Sen. David Vitter, Louisiana Republican.

But Sen. Richard J. Durbin of Illinois, the second-ranking Democrat in the chamber, said the deficit could be reduced if Republicans would agree to a higher estate tax than Republicans is seeking.

“This is supposed to be a fiscally conscious group trying to reduce the deficit, and now they want to reward 6,000 of the wealthiest families in America with an additional annual benefit of $1 million?”

He also defended the new unemployment-benefit spending, arguing that it was needed stimulus at a time when the economy is still sputtering.

“The president is saying you’ve got to protect these 2 million people who are unemployed. Is that a stimulus? You bet it is,” he told reporters after emerging from an hours-long meeting with fellow Democrats.

Even as leaders butted heads, some senators said they were preparing their own workarounds.

“I will tell you that I’ve talked with numerous Democrats and Republicans on the floor, and there are a lot of subgroups who are eager to tackle this issue and try to come up with a solution if the negotiations break down at the leaders’ level,” said Sen. Susan M. Collins, Maine Republican.

She jokingly called it the “common-sense caucus.”

• David Sherfinski and Dave Boyer contributed to this article.