Republican and Democratic negotiators careened toward a mid-afternoon deadline for a "fiscal cliff" deal, still uncertain they can come up with a deal to avoid the fiscal cliff that can pass both the House and Senate and win President Obama's signature.
Focused on the Senate, which would act first, the negotiations involve setting a threshold for income tax rate hike at $400-500,000 incomes — higher than Mr. Obama wants but near the last offer he made to House Speaker John Boehner before their talks collapsed earlier this month. One participant in the discussions said rates on both capital gains and dividends would rise to 20% from 15% currently in their potential deal.
But several variables make the outcome of negotiations uncertain — much less whether the resulting agreement could pass both houses of Congress.
Among the unresolved issues: the level at which estates would be taxed, whether unemployment benefits would be extended, extension of a series of other tax provisions affecting business and middle-income families,and whether the deal would forestall the across-the-board budget "sequester" cuts that, like the rise in all income tax rates, are scheduled to take effect on Jan. 1.
Democrats believe they hold the upper hand in negotiations because of the Jan. 1 deadline, and the fact that Mr. Obama just won re-election after campaigning on higher taxes on incomes above $250,000. But Republican leaders may have trouble compromising to accommodate that reality because of the influence of anti-tax conservatives.
Compromise might become easier after rates have risen on Jan.1 because proposals then can be seen more quickly as cuts from existing tax rates, as compared to an agreement to allow rates rise before then. As a result, Democratic negotiators express uncertainty about whether Republicans actually want to make a deal now. At the same time, some Republicans accuse the president and his party of seeking to maximize the political benefits of stalemate.
—By CNBC's John Harwood; Follow him on Twitter: