WASHINGTON — A Capitol Hill deal to avert the "fiscal cliff" was proving elusive Sunday as a deadline to avert tax hikes on virtually every American worker and block sweeping spending cuts set to strike the Pentagon and other federal agencies grew perilously near.
Senate Majority Leader Harry Reid, D-Nev., and Senate Republican leader Mitch McConnell remained at odds on such key issues as the income threshold for higher tax rates and how to deal with inheritance taxes, among other issues. McConnell complained that Reid had yet to respond to a GOP offer made Saturday evening and reached out to Vice President Joe Biden, a longtime friend, in hopes of breaking the impasse.
One sign of progress came as Republicans withdrew a long-discussed proposal to slow future cost-of-living increases for Social Security recipients as part of a compromise to avoid the cliff. Democrats said earlier Sunday that proposal had put a damper on the talks, and Republican senators emerging from a closed-door GOP meeting said it is no longer part of the equation.
"I was really gratified to hear that Republicans have taken their demand for Social Security benefit cuts off the table. The truth is they should never have been on the table to begin with," Reid said late Sunday afternoon. "There is still significant distance between the two sides, but negotiations continue."
At stake are sweeping tax hikes and across-the-board spending cuts set to take effect at the turn of the year. Taken together, they've been dubbed the fiscal cliff, and economists warn the one-two punch — which leaders in both parties have said they want to avoid — could send the still-fragile economy back into recession. Tax cuts enacted in 2001 and 2003 expire at midnight Monday, and $109 billion in across-the-board cuts in federal spending this year would also begin this week.
Sen. Dick Durbin, D-Ill., said the two sides remained at odds over the income threshold for higher tax rates and tax levels on large estates. Republicans said that Democratic demands for new money to prevent a cut in Medicare payments to doctors and renew jobless benefits for the long-term unemployed should be financed with cuts elsewhere in the budget. Republicans also balked at a Democratic proposal to use new tax revenues to shut off the across-the-board spending cuts, known as a sequester in Washington-speak.