President Obama said Monday that Congress is making progress on a short-term "fiscal cliff" deal, but it is increasingly clear as a midnight deadline approaches that Washington will have to fix the impending tax hikes and spending cuts retroactively.
House Republicans advised members Monday afternoon that no votes were expected on a final deal tonight, but cautioned that the situation is "very fluid."
Negotiators have signed off on the provisions of a deal affecting tax rates, according to Senate Minority Leader Mitch McConnell, R-Ky., but an ongoing dispute over how and whether to turn off impending spending cuts remains a hurdle.
"We're very, very close to an agreement," McConnell said, who suggested that Congress may have to move forward with a vote on just the tax portion of an agreement to reassure Americans while Congress continues to fight over spending cuts. "Let's take what's been agreed to and get moving," he said.
Negotiations have narrowed to a Democratic offer to pay for the spending cuts for two months, estimated to cost $24 billion, a McConnell spokesman said. Republicans want additional cuts to make up for supplanting those cuts and have sent Democrats a list outlining $130 billion of suggested cuts for Democrats to consider.
Senators were awaiting guidance from Senate Majority Leader Harry Reid, D-Nev., on whether a deal could be reached tonight. However, a vote on any potential deal seemed unlikely before midnight as the negotiations entered the early evening hours.
An agreement to prevent a New Year's tax hike "is within sight -- but it's not done," Obama told an audience of cheering supporters at a White House event. Without providing specific details, Obama said the proposal would help reduce the nation's $16 trillion-plus debt through higher taxes on the wealthy. He said it would also extend unemployment insurance and preserve tax credits for such middle class items as child care and education.
"There are still issues left to resolve but we're hopeful Congress can get it done," Obama said at a campaign-style event that chafed congressional Republicans. Obama's 2008 presidential rival Sen. John McCain, R-Ariz., criticized it as "a cheerleading, ridiculing-of-Republicans exercise."
According to officials familiar with the talks, there is consensus to allow the George W. Bush-era rates to expire for individuals earning above $400,000 and joint filers above $450,000. Negotiators have also agreed to an increase in the estate tax rate from 35% to 40% on inheritances over $5 million.
The president said he would have preferred a bigger debt reduction deal, but congressional Republicans balked and now it will have to be done "in stages." Down the line, Obama said he will continue to insist that debt reduction be balanced with revenues as well as spending cuts, foreshadowing a second term defined by budgetary clashes with Republicans.
"It's going to have to be a matter of shared sacrifice, at least as long as I'm president," Obama said. "And I'm going to be president for the next four years, I hope."
The president's comments were immediately met with frustration by Republican senior congressional aides who vented on Twitter.
"If Obama's goal was to harm the process and make going over the cliff more likely, he's succeeding," said Doug Heye, a spokesman for House Majority Leader Eric Cantor, R-Va.
Added Josh Holmes, a top aide to Senate Majority Leader McConnell, R-Ky.: "(Obama) just moved the goalpost again. Significantly. This is new."
Obama, meanwhile, cracked a joke about lawmakers: "And one thing we can count on with respect to this Congress is that if there is even one second left before you have to do what you're supposed to do, they will use that last second."
The negotiations have narrowed down to how and whether to turn off the impending $110 billion in spending cuts scheduled for 2013. They are part of the automatic $1.2 trillion in cuts over 10 years that Congress approved in the summer of 2011 when they failed to come up with deficit reduction on their own.
Republicans object to using new revenue to pay for the cuts because it negates the overarching goal of deficit reduction. "Everybody in this body knows that we've done nothing-nothing-to reduce a penny of debt in this country," said Sen. Bob Corker, R-Tenn. Any proposal to use revenue to pay for spending without additional cuts will likely face significant opposition among Republicans, particulary in the GOP-controlled House.
Speaker John Boehner, R-Ohio, has said he will bring to the floor whatever passes the Senate, but he has cautioned that his chamber reserves the right to amend -- or defeat -- the proposal.
Vice President Joe Biden has proven a late but potentially crucial player in the budget negotiations. Frustrated by his failure to make progress with Reid over the weekend, McConnell called on Biden to step in and help move the talks forward. The two have remained in constant contact since then, McConnell said. "I'm happy to report the effort has been a successful one," he said.
Without action, all of the Bush-era tax rates expire at midnight resulting in tax increase on practically every American household.
The administration's willingness to raise the threshold for higher tax rates above the president's campaign pledge for earners above $250,000 was met with resistance by liberals. "This is one Democrat that doesn't agree with that at all," said Sen. Tom Harkin, D-Iowa. "I think that's grossly unfair." Harkin said that most Americans earn between $25,000-$60,000. "And they're the ones getting hammered right now," he said.
If Congress fails to act, Obama has asked Reid to bring to the floor a stripped-down plan that would include a renewal of unemployment insurance and an extension of the Bush tax cuts for middle-class Americans who make less than $250,000 a year.
"Republicans will have to decide if they're going to block it, which will mean that middle-class taxes do go up," President Obama said on Sunday on NBC's Meet the Press.
Budget conflicts have been a recurring theme in the 112th Congress, which ends Thursday at noon when nearly 100 new House and Senate lawmakers will be sworn in to office.
The Democratic president and divided Congress first clashed in spring 2011 over a near-government shutdown. Tensions continued that summer during the fight over raising the national debt limit.
Such tensions are likely to happen again in 2013. Congress must approve in mid-February an increase in the $16.4 trillion debt ceiling, the nation's borrowing authority, and in late March when the current federal funding runs out and another government shutdown threat looms if the partisan gridlock continues.
"When the president said today that round two is the debt ceiling, he is right," said Sen. Lindsey Graham, R-S.C. Republicans will fight for spending cuts, particularly in entitlement programs like Medicare, in exchange for the required congressional approval to raise the debt ceiling. "If that's too much to ask, so be it," he said.