Brace for impact: U.S. WILL plummet over fiscal cliff as House announces it will not take up last-minute deal before deadline

By Toby Harnden In Washington and Michael Zennie

PUBLISHED: 12:48 EST, 31 December 2012 | UPDATED: 16:43 EST, 31 December 2012

The United States will plummet over the fiscal cliff at midnight - though Capitol Hill aides insist a deal that would avert a major disaster can be passed on New Year's Day.

Congressional leaders have failed to pass a deal in time to stave off automatic massive tax increases and spending cuts that economists predict will send the nation into recession. But a deal before business resumes on Wednesday might still prevent major repercussions.

The House announced about 4pm that it would not be voting on a fiscal cliff deal today. The announcement dashes hopes that a last-minute compromise was within reach as Senate Republicans hammered out a deal brokered by Vice President Joe Biden. 

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Good news: President Barack Obama went on live TV to announce a deal on the fiscal cliff was 'close'

President Barack Obama had announced that a deal to avert billions of dollars of tax increases that will kick in at midnight is 'within sight, but it's not done yet.'

He lamented that he and Congress were unable to reach a 'grand deal' to tackle the debt and reform the tax code - but said he would settle for a plan to stop taxes from going up on all but the richest Americans.

'Our most immediate priority is to prevent taxes from going up on middle class families tomorrow. I think that is a modest goal we can accomplish,' he said.

Several leading Republicans, most notably Senator John McCain, lambasted Obama for what they said was a partisan statement that had set back chances of a deal.

Senator Bob Corker of Tennessee on the Senate floor that his 'heart was still pounding' after a 'very unbecoming' Obama speech before a 'pep rally'.

Intensive overnight talks between Biden and Senate Minority Leader Mitch McConnell had raised hopes that a deal will be reached to avert going over the so-called 'fiscal cliff' when the clock strikes twelve and ushers in 2013.

About 3pm McConnell took to the Senate floor to announce, 'I can report that we’ve reached an agreement on all of the tax issues. We are very, very close.'

The potential deal appeared to be centred around raising tax rates for families earning more than $450,000 a year and individuals who make more than $400,000.

At the same time delaying for three months the 'sequester' that would trigger tens of billions of dollars in spending cuts at the Pentagon and other federal agencies while unemployment insurance, a key issue for Democrats, would be extended.

But the tentative agreement prompted a fierce rearguard action from liberal Democrats who wanted the $450,000 level reduced and the delay for the sequester extended to a year, not least to prevent another fiscal cliff crisis at the end of March.

'There are still issues left to resolve but we're hopeful Congress can get it done,' Obama said at an event at the White House that featured 14 'middle class Americans' standing behind him. 'But it's not done.'

Last ditch: US Senate Minority from Kentucky Mitch McConnell, centre, arrives on Capitol Hill on the last day of talks to avert the so-called fiscal cliff today

Final chance: House Speaker John Boehner of Ohio, left, and House Majority Leader Eric Cantor of Va., right, arrive on Capitol Hill in Washington, on Monday, December 31, 2012 to discuss tax hikes and spending cuts

Speaking on the Senate floor - where members were convening on New Year's Eve for the first time since 1995 - Senator Tom Harkin of Iowa thundered: 'No deal is better than a bad deal and this looks like a very bad deal the way this is shaping up.'

The fiscal cliff is a series of tax rises and budget cuts that take effect on January 1st 2013 unless the White House and Congress reach an agreement to start reducing the country's $16 trillion-plus debt.

Biden and McConnell served in the Senate together for 23 years. The vice-president had been absent from fiscal cliff negotiations but was brought in when McConnell telephoned him after discussions with Senator Harry Reid, the Democratic Majority Leader, ran into the sand.

The deal would represent major concessions for both Democrats and Republicans - President Barack Obama campaigned on raising taxes for families making more than $250,000 while Republicans have been adamantly opposed to any tax increases.

Aides briefed that Biden and McConnell spoke at 12.45am on December 31st and then again at 6.30am.

Some economists predict that going over the 'fiscal cliff' could eventually throw the U.S. economy back into recession, though if the deadline passes politicians still have several weeks to keep the tax rises and spending cuts at bay by repealing them retroactively if a deal is reached.

Biden had proposed raising taxes on individuals earning more than $360,000 annually and families with income of more than $450,000. McConnell responded by offering a tax rise for individuals above $450,000 and couples who earn more than $550,000.

Democratic negotiators insist that McConnell will have to go significantly lower to win support from their party while Republicans argue that dropping the tax rise threshold would make it more difficult for the Grand Old Party leader to win over fellow Republicans.

Talks: Senate Majority Leader Harry Reid of Nevada, right, arrives on Capitol Hill in Washington as fiscal cliff negotiations continued

Any deal that passes in the Senate will have to be voted on by the House of Representatives - a much higher hurdle because it is controlled by Republicans and John Boehner, the Speaker, has a tenuous hold over his caucus.

In an interview on NBC's Meet the Press' that was broadcast on Sunday, President Barack Obama blasted congressional Republicans for waiting out the clock as the nation edges closer to the so-called fiscal cliff.

'We've been talking to Republicans but they have a hard time saying 'yes,' Obama said Sunday.

'They say that their biggest priority is making sure that we deal with the deficit in a serious way, but the way they're behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected,' Obama said Sunday. 'That seems to be their only overriding, unifying theme.'

The president called on congressional leaders to work out a solution on the fiscal cliff over the Christmas break. He also said 'because we didn't get this done, I will see you next week.'

Obama said he had tried to negotiate with Republicans but his efforts had been blocked.

He insisted he had met Republicans more than half way on their demands, citing that he reduced his initial demand for revenue from $1.6 trillion to $1.2 trillion, agreed to entitlement reforms, and has already passed spending cuts such as the $1 trillion as part of the Budget Control Act in 2011.

Obama challenged Republicans to vote on legislation that he said should be introduced by the Democrat-controlled Senate to prevent taxes on the "middle class" from being increased.

But he did not specify what income level he would be willing to accept as a dividing line between those who retain Bush-era tax rates and those whose rates would increase. The president has consistently supported increasing taxes on families making over $250,000 a year, but that figure has been a major bargaining chip in negotiations.

Disappointed: President Barack Obama, pictured, said he had tried to negotiate with Republicans but his efforts had been blocked

Wherever the line on tax increases ends up, Obama urged a vote in both houses on a final Senate bill if a broader agreement cannot be reached.

'Everybody should have a right to vote on that,' he said. 'If Republicans don't like it, they can vote no. But I actually think that there's a majority support for making sure that middle class families are held harmless.'

'So far, at least, Congress has not been able to get this stuff done,' he added. 'Not because Democrats in Congress don't want to go ahead and cooperate, but because I think it's been very hard for Speaker Boehner and Republican Leader McConnell to accept the fact that taxes on the wealthiest Americans should go up a little bit, as part of an overall deficit reduction package.'

Obama waved off any suggestions that the Democratic Party is as averse to compromise as the GOP, adding that Democrats  have more consistently agreed to components of bipartisan deals, 'warts and all.'

'What I'm arguing for are maintaining tax cuts for 98 percent of Americans. I don't think anybody would consider that some liberal left-wing agenda. That used to be considered a pretty mainstream Republican agenda,' he said.

'And it's something that we can accomplish today if we simply allow for a vote in the Senate and in the House to get it done. The fact that it's not happening is an indication of how far certain factions inside the Republican Party have gone where they can't even accept what used to be considered centrist, mainstream positions on these issues.'

Obama offered no new suggestions of compromise, although he acknowledged that some Democrats oppose entitlement adjustments and some of the spending cuts that he's put forward during negotiations.

Speaker of the House John Boehner, (left) and Senate Majority Leader Harry Reid (right with the president) must compromise together along with President Obama on the looming 'fiscal cliff'

If an impasse remained in place, Obama warned, Republicans' rejection of his version of deficit reduction plans would be enough to send financial markets skidding.

'What's been holding us back is the dysfunction here in Washington,' he said.

'And if people start seeing that on January 1st this problem still hasn't been solved, that we haven't seen the kind of deficit reduction that we could have had had the Republicans been willing to take the deal that I gave them, if they say that people's taxes have gone up, which means consumer spending is going to be depressed, then obviously that's going to have an adverse reaction in the markets.'

 VIDEO    Watch the full Meet The Press interview here 

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