US To Miss Fiscal Cliff Deadline But Deal Close

An agreement to avoid the sharp tax hikes and spending cuts known as the fiscal cliff will not be reached before the midnight deadline, US politicians say.

Earlier President Barack Obama said a deal to avert the fiscal cliff is "within sight" but not done yet.

Tuesday is a public holiday in the US, so no immediate effects will be felt.

Flanked by guests at a White House event for middle-class Americans, the president spoke on Monday afternoon as the talking continued.

"Today it appears that an agreement to prevent the New Year tax hike is within sight but it's not done," he said, adding he would have preferred to see an all-embracing deal rather than a compromise on only certain points.

"That's progress but we're going to need to do more."

The compromise proposal would raise tax rates on families making over $450k a year to 39.6%.

The tax on estates worth more than $5m would increase to 40% from 35%. Unemployment benefits would continue for one year.

But the White House and Republicans are said to be stuck on what to do about automatic, across-the-board spending cuts set to start taking effect on Tuesday.

Democrats want to put off the cuts for one year and offset them with unspecified revenue.

Officials emphasised that negotiations were continuing and the emerging deal was not yet final.

The talks between the White House and congressional Republicans are being led by longtime negotiating partners Vice President Joe Biden and Senate Republican leader Mitch McConnell.

The deal would achieve about $600bn in new revenue, the officials said.

Unless an agreement is reached and approved by Congress, more than $500bn in tax increases for nearly all Americans will begin to take effect, and $109bn will be cut from defence and domestic programmes.

The House of Representatives and the Senate have been meeting - a rarity for New Year's Eve - in the hope of finalising a tentative agreement to consider.

But Republicans, who control the House, are scared of raising taxes.

And Democrats, who control the Senate and the White House, are scared of cutting spending.

"There are a number of issues on which the two sides are still apart," Democratic Majority Leader Reid conceded earlier.

Even if the Senate does soon sign off on a deal, avoiding the cliff could go down to the wire.

The bill must then go to the Republican-controlled House of Representatives where House Speaker John Boehner has struggled to control his party's conservative wing, which is vehemently opposed to raising taxes.

If there is no final deal, the economic effects would be gradual but harsh.

America could lose up to 3.4 million jobs, with budget cuts of up to 9% for most of the US government, according to the Congressional Budget Office.

If the limit is not raised on how much the government can borrow, the government will reach its $16.4trn ceiling in February or March. 

That could lead to a first-ever default that would shake worldwide confidence in the United States.

On top of all of that, after January 3, it will be down to a newly elected Congress with 13 new senators and 82 new House members to resolve the problem.