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Senate leaders dour on cliff deal; compromise is elusive as fiscal deadline looms

By Andrew Taylor and Alan Fram

Associated Press

Published: Sunday, Dec. 30 2012 11:39 p.m. MST

Clouds roil over the White House in Washington on the morning of Sunday, Dec. 30, 2012, as Washington has less than 48 hours to avert the fiscal cliff, a series of tax increases and spending cuts set to take hold on Jan. 1. Republican and Democratic negotiators in the Senate were hoping to reach a deal to avoid going over the cliff on Sunday.

Associated Press

WASHINGTON — A Capitol Hill deal to avert the "fiscal cliff" was proving elusive Sunday as a deadline to avert tax hikes on virtually every American worker and block sweeping spending cuts 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 yet to respond to a GOP offer made Saturday evening and reached out to Vice President Joe Biden, a longtime friend, in hopes of breaking the impasse.

Rank-and-file lawmakers left the Capitol Sunday night with hopes that their leaders would give them something to vote on when they returned Monday morning. 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 proposal had put a damper on the talks, and Republican senators emerging from a closed-door GOP meeting said it is no longer part of the equation.

"I was really gratified to hear that Republicans have taken their demand for Social Security benefit cuts off the table. The truth is they should never have been on the table to begin with," Reid said late Sunday afternoon. "There is still significant distance between the two sides, but negotiations continue."

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 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 today, and $109 billion in across-the-board cuts in federal spending this year would also begin this week.

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 that 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 Barack Obama, in a televised interview, blamed Republicans for putting the nation's shaky economy at risk.

"We have been talking to the Republicans ever since the election was over," Obama said in the interview that was taped Saturday and aired Sunday on NBC's "Meet the Press." "They have had trouble saying yes to a number of repeated offers."

"The mood is discouraged," said Sen. Joe Lieberman, a Connecticut independent who caucuses with Democrats. "The parties are much further apart than I hoped they'd be by now."

The pessimistic turn came as the House and Senate returned to the Capitol for a rare Sunday session. Reid and McConnell had hoped to have a blueprint to present to their rank and file by mid-afternoon.

"I'm concerned with the lack of urgency here. There's far too much at stake," McConnell said. "There is no single issue that remains an impossible sticking point — the sticking point appears to be a willingness, an interest or courage to close the deal."

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.

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