'Fiscal cliff' at hand - talks continue - San Francisco Chronicle

Washington --

A Capitol Hill deal to avert the "fiscal cliff" proved elusive Sunday as a deadline to avert tax hikes on virtually every American worker and block sweeping spending cuts that are set to strike the Pentagon and other federal agencies grew perilously near.

Senate Majority Leader Harry Reid, D-Nev., and Senate Republican leader Mitch McConnell remained at odds on such key issues as the income threshold for higher tax rates and how to deal with inheritance taxes, among other issues.

McConnell complained that Reid had failed to respond to a GOP offer made Saturday evening. The Kentucky Republican reached out to Vice President Joe Biden, a longtime friend, in hopes of breaking the impasse. Biden assumed the lead role for Democrats, and a McConnell spokesman said the two were expected to negotiate by telephone into the night.

Rank-and-file lawmakers left the Capitol on Sunday night with hopes that their leaders would give them something to vote on when they return Monday.

One sign of progress came as Republicans withdrew a long-discussed proposal to slow future cost-of-living increases for Social Security recipients as part of a compromise to avoid the cliff. Democrats said earlier Sunday that the proposal had put a damper on the talks, and Republican senators emerging from a meeting said it is no longer part of the equation.

At stake are sweeping tax hikes and across-the-board spending cuts set to take effect at the turn of the year. Taken together, they've been dubbed the fiscal cliff, and economists warn that the one-two punch - which leaders in both parties have said they want to avoid - could send the still-fragile economy back into recession. Tax cuts enacted in 2001 and 2003 expire at midnight Monday, and $109 billion in across-the-board cuts in federal spending this year would also begin this week.

Workers could see more taxes withheld from their paychecks, and federal agencies are likely to soon receive warning of possible furloughs if lawmakers fail to reach a deal.

Sen. Dick Durbin, D-Ill., said the two sides remained at odds over the income threshold for higher tax rates and tax levels on large estates. Republicans said Democratic demands for new money to prevent a cut in Medicare payments to doctors and renew jobless benefits for the long-term unemployed should be financed with cuts elsewhere in the budget. Republicans also balked at a Democratic proposal to use new tax revenues to shut off the across-the-board spending cuts, known as a sequester in Washington-speak.

President Obama, in an interview on NBC's "Meet the Press," blamed Republicans for putting the nation's shaky economy at risk.

McConnell and Reid were hoping for a deal that would prevent higher taxes for most Americans while letting rates rise at higher income levels, although the precise point at which that would occur was a sticking point.

Obama had wanted to raise the top tax rate on individuals making more than $200,000 a year and families making more than $250,000 from 35 percent to 39.6 percent. In talks with Republican House Speaker John Boehner, he offered to raise that threshold to $400,000.