President Barack Obama cut short his holiday and was returning to Washington today as no deal appeared in sight to avoid the year-end "fiscal cliff" of higher taxes and deep spending cuts that could spin the still-fragile back into a recession.
Treasury Secretary Timothy Geithner warned that the government was on track to hit its borrowing limit on Monday, the last day of the year.
Geithner has said he would take "extraordinary measures as authorized by law" to postpone a government default, but he said uncertainty over the outcome of the fiscal cliff negotiations made it difficult to determine how much time those measures would buy.
Congress was not expected to return until Friday. In recent days, Obama's aides have been consulting with Senate Democratic Leader Harry Reid's office, but Republicans have not been part of the discussions, suggesting that much still needs to be done to strike and pass a deal, even a small one, by Monday.
Senators are expected to return to Washington Thursday evening, but with no potential solution on the agenda. The series of votes waiting for them are unrelated to the fiscal deadline, the New York Times reported. The House of Representatives will begin a session at 2 p.m. Friday, but because Republicans haven't been called back by leader John Boehner, the session will most likely recess soon after.
At stake are tax cuts that expire on Dec. 31 and revert to the higher rates in place during the administration of President Bill Clinton in the 1990s. That means $536 billion in tax increases that would affect nearly all Americans. Moreover, the military and other federal departments would have to cut $110 billion in spending.
The changes are part of a long-delayed need for the government to address its deficit spending.
While economists have warned about the impact of such a massive and abrupt shift, both the Obama administration and Congress appear to be proceeding as if they have more than just four days left.
Major challenge
Congress could still act in January in time to retroactively counter the effect on most taxpayers and government agencies, but chances for a large deficit reduction package would likely be put off.
A major challenge in the negotiations is taxes. Obama has wanted the current tax cuts to stay in place for most Americans while letting taxes go higher for the wealthiest ones.
House Republican leaders on Wednesday urged the Democratic-controlled Senate to consider or amend a House-passed bill that extends all existing tax rates. "The Senate first must act," they said.
But Reid's office insisted that the Republican-controlled House act on Senate legislation passed in July that would raise tax rates only on incomes above $200,000 for individuals and $250,000 for couples.
Meanwhile, Obama has been pushing for a variant of that Senate bill that would include an extension of jobless aid and some spending reductions to prevent the steeper, broader spending cuts from kicking in.
Even if the Senate acts, House Speaker Boehner would have to let the bill get to the House floor for a vote. The chances of accomplishing that by Dec. 31 were slim.
Accounting measures
Amid the standoff, Geithner advised Congress on Wednesday that the administration will begin taking action to prevent the government from hitting its borrowing limit. In a letter to congressional leaders, Geithner said accounting measures could save approximately $200 billion.
That could keep the government from reaching the debt limit for about two months. But if Congress and the White House don't agree on how to avoid the "fiscal cliff," Geithner said, the amount of time before the government hits its borrowing limit is more uncertain.
Whenever the debt ceiling hits, however, it is likely to set up yet another deadline for one more budget fight between the White House and congressional Republicans.
Clearing the way for a higher debt ceiling was supposed to be part of a large deal aimed at reducing deficits by more than $2 trillion over 10 years with a mix of tax increases and spending cuts. But chances for that bargain fizzled last week when conservatives sank Boehner's legislation to let tax increases affect only taxpayers making $1 million or more.
Another potential showdown is pending. A renewed clash over spending could come in late March, since spending authority for much of the government expires on March 27.
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