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Despite emerging deal, US to miss fiscal cliff deadline

US President Barack Obama speaks about fiscal cliff negotiations from the White House in Washington on December 31, 2012
US President Barack Obama pauses while speaking about the ongoing fiscal cliff negotiations from the White House in Washington on December 31, 2012. US lawmakers missed their deadline to avoid the so-called "fiscal cliff" Monday but said they were near to

US lawmakers missed their deadline to avoid the so-called "fiscal cliff" Monday but said they were near to finding a deal to ease the worst impact of the crisis by heading off tax hikes.

Top political leaders appeared on the verge of a last-gasp deal to resolve the tax side of the showdown, but they fell short of an agreement on slashing spending cuts, which are also due to come into force on Tuesday.

Despite rising hopes, the economy will technically go over the cliff at midnight after the aides to Republican leaders in the House of Representatives said no vote on a pact could be scheduled before Tuesday.

While automatic spending cuts and tax hikes will come into force, global stock markets will be closed on New Year's Day, giving lawmakers a few more hours of breathing room before panic over the US economy sets in.

"We don't have anything to vote on," a senior Republican source told AFP, noting that no bill containing a deal had so made it to the Senate floor.

The source said there was "no chance they pass something early enough that we could (vote) before midnight, even if we wanted to."

Last gasp before the fiscal cliff
Chart showing US gross federal debt as of January 1 each year since 2000

Another House Republican source sought to downplay the fact that lawmakers were on course to miss their self-imposed deadline.

"If a deal is reached, there's little difference between a vote tonight or tomorrow to give members a chance to review," the source said.

On a day of political drama and ill feeling, President Barack Obama said a deal was close though not done and the top Senate Republican, Mitch McConnell, agreed.

"It appears that an agreement to prevent this New Year's tax hike is within sight. It's not done. There are still issues left to resolve, but we're hopeful that Congress can get it done," Obama said at the White House.

McConnell added: "We are very, very close."

The framework of a possible deal to head off the automatic tax increases due to kick in with the turn of a year appeared to be in place after marathon talks between Vice President Joe Biden and McConnell.

But Obama hinted that the proposed pact would not deal with complementary and punishing cuts to government spending also due to take place in the New Year, which he said would have to be resolved down the line.

US Senate Minority Leader Mitch McConnell walks towards the Senate floor on December 31, 2012 in Washington
US Senate Minority Leader Mitch McConnell walks towards the Senate floor to deliver remarks on the fiscal cliff on December 31, 2012, on Capitol Hill in Washington, DC.

As he tried to sell the emerging deal to his Democratic Party's liberal base, he said it would extend tax credits for clean energy firms and also unemployment insurance for two million people due to expire later Monday.

It was also expected to include an end to a temporary two percent cut to payroll taxes for Social Security retirement savings and Medicare health care programs for seniors and changes to inheritance and investment taxes.

The president delivered his remarks in the White House complex in a campaign-style appearance, but his tone angered Republicans.

"Now, if Republicans think that I will finish the job of deficit reduction through spending cuts alone... then they've another thing coming," Obama said, and also poked fun at the glacial pace of Congressional deliberations.

Republicans immediately took to the floor of the Senate to complain.

Senator John McCain accused Obama of ridiculing Republicans and of needlessly antagonizing House of Representatives' members who will be required to vote for an eventual deal.

Republican Senator Bob Corker said his heart was pounding with disappointment at Obama's remarks.

"I know the president has fun heckling Congress. I think he lost probably numbers of votes with what he did," he said.

Senate Majority Leader Harry Reid is surrounded by reporters after a caucus meeting in the Capitol on December 30, 2012
Senate Majority Leader Harry Reid is surrounded by reporters as he walks out of the Mansfield Room after a caucus meeting in the US Capitol on December 30, 2012, in Washington.

"It's unfortunate he doesn't spend as much time solving problems as he does with campaigns and pep rallies."

Reports said the deal would see taxes for families earning more than $450,000 a year go back up to the 39.6 percent level where they stood in former president Bill Clinton's administration.

Obama had originally campaigned for tax hikes to kick in for those making $250,000 and above and his acceptance of a higher threshold has already angered liberals.

Republicans have dropped their demand for a new way of calculating inflation that would have cut the level of benefits for Social Security recipients.

But they were reportedly maintaining their insistence that estate inheritance tax rates stay at current levels.

The two sides remained bitterly at odds over the $109 billion in automatic spending cuts set to hit the Pentagon as well as other federal agencies beginning in early January.

Signs that a deal could be close cheered investors Friday as US markets rose before closing for the year. The Dow Jones Industrial Average closed up 166.03 points (1.28 percent) at 13,104.14.

Democrats said they were pushing for a delay of the cuts, known as the "sequester," for about two years, while some Republicans said it was inconceivable to allow a delay without imposing more targeted offsets to pay for such a postponement.

Don Stewart, McConnell's spokesman, said in a statement on Monday that the Republican leader and Biden had talked long into the night to try to hammer out a deal.

There may be a push by conservatives to let the economy slide off the cliff at midnight so lower tax rates expire on all Americans.

Lawmakers could then come back Tuesday to vote, and spin their action as a tax cut on the middle class.