Progress seen in last-minute 'fiscal cliff' talks (+video)

By Julie Pace

Associated Press

Published: Monday, Dec. 31 2012 12:00 a.m. MST

President Barack Obama speaks to reporters in the Brady Press Briefing Room at the White House in Washington after meeting with Congressional leaders regarding the fiscal cliff, Friday, Dec. 28, 2012. (AP Photo/Charles Dharapak)

Charles Dharapak, AP

WASHINGTON — Working against a midnight deadline, negotiators for the White House and congressional Republicans narrowed their differences Monday on legislation to avert across-the-board tax increases.

Congressional officials familiar with talks between Vice President Joe Biden and Senate Republican leader Mitch McConnell said one major remaining sticking point was whether to postpone spending cuts that are scheduled to begin on Jan 1.

Republicans want to replace across-the-board reductions with targeted cuts elsewhere in the budget, while the White House and Democrats want to offset at least some of the so-called sequester with the revenue from tax increases. Senate Democrats were pushing hard against a GOP proposal for just a three-month delay in the across-the-board cuts.

At the same time, Democrats said the two sides were closing in on an agreement over taxes. They said the White House had proposed blocking an increase for most Americans, while letting rates rise for individuals with incomes of $400,000 a year and $450,000 for couples, a concession from President Barack Obama's campaign call to set the levels at $200,000 and $250,000.

Any overall deal was also likely to include a provision to prevent a spike in milk prices with the new year, extend unemployment benefits due to expire and protect doctors who treat Medicare patients from a 27 percent cut in fees.

Despite the movement, Senate Majority Leader Harry Reid warned that differences remained without spelling out what they were and said cooperation would be needed by both sides.

"Negotiations are continuing as I speak," said Reid, D-Nev., as the Senate began an unusual New Year's Eve session. "But we really are running out of time. Americans are still threatened with a tax hike in just a few hours."

Liberal Sen. Tom Harkin, D-Iowa, took to the Senate floor after Reid to warn Democratic bargainers against lowering levies on large inherited estates and raising the income threshold at which higher tax rates would kick in.

"No deal is better than a bad deal. And this look like a very bad deal the way this is shaping up," said Harkin.

He suggested instead letting tax rates revert to the higher levels that existed when the economy was strong under President Bill Clinton, adding, "I ask, what's so bad about that?"

Both the House and Senate were on meeting on the final day of the year, although there was no expectation that a compromise could be approved by both houses by midnight, even if one were agreed to.

Instead, the hope of the White House and lawmakers was to seal an agreement, enact it and send it to Obama for his signature before taxpayers felt the impact of higher income taxes or federal agencies began issuing furloughs or taking other steps required by spending cuts.

Regardless of the fate of the negotiations, it appeared all workers would experience a cut in their take-home pay with the expiration of a two-year cut in payroll taxes.

Officials who described the negotiations did so on condition of anonymity, citing the confidential nature of the discussions.

A spokesman for McConnell, Don Stewart, said the Kentucky lawmaker and Biden "continued their discussion late into the evening and will continue to work toward a solution." Underscoring the flurry of activity, another GOP aide said the two men had conversations at 12:45 a.m. and 6:30 a.m. Monday.

Unless an agreement is reached and approved by Congress by the start of New Year's Day, more than $500 billion in 2013 tax increases will begin to take effect and $109 billion will be carved from defense and domestic programs

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