WASHINGTON - With the clock ticking toward a New Year's time bomb of huge tax increases and spending cuts, US lawmakers rushed Saturday to keep America from tumbling off the so-called fiscal cliff.
The stakes in the game of holiday-interrupting brinkmanship are huge.
Economists agree the $500 billion (S$612 billion) in fiscal pain due to kick in as soon as the new year starts would stifle the gathering US economic recovery and send the United States back into recession, spelling bad news for the global economy as well.
Aides to leaders of the Democrat-controlled Senate worked behind closed doors to fashion a deal palatable to Republicans, who control the House of Representatives, and Democrats, alike.
A senior Republican aide said "discussions are underway." He added that details of any deal would remain under wraps until leaders brief their caucuses on Sunday.
Both chambers would need to pass a deal by New Year's Eve, which means they have three days to get done what has eluded the White House and Congress for weeks, interrupting their year's end vacation in the process.
Amid the tense negotiations, President Barack Obama pressed lawmakers to clinch a deal, even if they must reach a compromise that lacks the significant deficit-reduction measures he had sought.
And Obama, who met with top congressional leaders Friday, warned the bickering politicians that the country "just can't afford a politically self-inflicted wound to our economy."
If lawmakers fail to agree in time, "every American's paycheck will get a lot smaller," he warned. "Congress can prevent it from happening, if they act now."
The president, sensing a mandate from his re-election last month, wants to raise taxes on the rich but exempt the middle class. Republicans want only to close tax loopholes to raise revenue and demand significant spending cuts in return.
But if nothing is done by the deadline, all taxpayers will see an increase.
Following the White House talks, Democratic Senate Majority Leader Harry Reid and Republican Minority Leader Mitch McConnell are leading efforts to seek a deal before Tuesday.
But any agreement would also have to pass the House of Representatives, where there is doubt that any deal signed off by the Democratic president would win favor with restive conservatives in the Republican caucus.
According to The Washington Post, a deal - a "stripped-down" version of earlier proposals dealing mainly with taxes - is within reach.
Citing unnamed people briefed on the talks, the newspaper said it would protect nearly 30 million taxpayers from paying the higher, alternative minimum tax rate for the first time and maintain unemployment benefits for two million people due to lose them, barring a deal.
The plan also would halt a steep cut in Medicare reimbursements for doctors and preserve popular tax breaks for both businesses and individuals, such as those for research and college tuition, the report said.
But the Post said the two sides were still at odds over where to set the limits of wealthy - at $250,000 a year or $400,000 a year - and over taxes on inherited estates.
Nor was there agreement on spending cuts so dear to Republicans, the paper said. Hence, a deal will not include either them or an agreement to raise the debt ceiling, setting up another fierce battle over the government's borrowing limit in the next two months.
Obama warned, however, that if an agreement was not reached in time, he would ask the Senate to hold an up-or-down vote on a basic package that protects the middle class from an income tax hike, extends unemployment insurance for Americans looking for a job, and "lays the groundwork for future progress on more economic growth and deficit reduction."
In a weekly Republican address, Missouri Senator Roy Blunt expressed some optimism, saying that "going over the fiscal cliff is avoidable."
But the vice chairman of the Senate's Republican Conference severely criticized the Democrats' plan to focus mainly on taxes while setting aside the issue of government spending, arguing that inaction on spending "shouldn't be an option."
"We still can avoid going over the fiscal cliff if the president and the Democrat-controlled Senate step forward this week and work with Republicans to solve this problem and solve it now," Blunt added.