27 December 2012 Last updated at 11:40 ET
The US appears to be heading over the “fiscal cliff”, with prospects dim for a deal to avoid tax rises and spending cuts, the US Senate leader says.
Speaking on the Senate floor, Democrat Harry Reid said there did not seem to be enough time to craft a deal before Monday night’s end-of-year deadline.
Senators and President Barack Obama have returned to Washington, while the House of Representatives is in recess.
Analysts say heading over the “cliff” could tip the US into recession.
Bickering over the cliff has divided Washington in recent weeks, with President Obama and House Speaker John Boehner unable to reach a deal before Christmas.
The president wants to ensure that taxes do not rise for Americans earning under $ 400,000 (£250,000), and insists on raising new tax revenue in any deal.
‘Dictatorship of the speaker’
But many Republicans oppose new taxes, and an alternative plan proposed by Mr Boehner – which would have seen taxes rise only on those earning over $ 1m – failed in the House late last week.
- On 1 January 2013, tax increases and huge spending cuts are due to come into force – the so-called fiscal cliff
- Deadline was put in place in 2011 to force president and Congress to agree ways to save money over the next 10 years
- Fear is that raising taxes while massively cutting spending will have huge impact on households and businesses
- Experts believe it could push the US into recession, and have a global impact on growth
Republicans left Washington for Christmas and said responsibility for avoiding the cliff rested with the Democratic-led Senate.
But in the Senate chamber on Thursday Mr Reid said the requirement to get at least 60 of 100 votes to move to a vote on any legislation almost certainly doomed any new plan unless Republicans gave it strong backing.
“It looks like that’s where we’re headed,” Mr Reid said of the fiscal cliff.
The Senate leader said the House of Representatives was “being operated with a dictatorship of the speaker”, accusing Mr Boehner of holding up a vote on a Senate-passed bill to avoid the fiscal cliff.
“John Boehner seems to care more about keeping his speakership than about keeping the nation on sound financial footing,” Mr Reid said. Mr Boehner faces an internal re-election contest among House Republicans on 3 January.
The term fiscal cliff refers to the combination of almost $ 600bn (£370bn) of tax rises and spending cuts due to come into force on 1 January if Congress does not pass new legislation.
Sweeping tax cuts passed during the presidency of George W Bush will expire, affecting people of all income levels.
In addition, spending cuts mandated by a law passed to break a previous fiscal impasse in Congress will come into force.
The cuts are expected to affect federal government departments and the defence sector, as well as hitting unemployment insurance and veterans’ support.
On Wednesday, Treasury Secretary Timothy Geithner warned Congress the Treasury would have to enact a series of extraordinary accounting measures to free up about $ 200bn from the government’s official borrowing figure.
Those measures would stop the government from hitting its $ 16.4tn “debt ceiling” – the legal limit set by Congress on how much the US government can borrow – for about another two months beyond 31 December.
But Mr Geithner warned that without them, the government would run out of cash on Monday and “the United States would otherwise default on its legal obligations”.
BBC News – Business
Title Post: US ‘heading over fiscal cliff’
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