No Fiscal Deal, Senate to Return for Dramatic New Year's Eve

Senate Majority Leader Harry Reid, makes his way to a meeting of the Senate Democratic Conference as Congress continues a weekend session in the hopes averting the 'fiscal cliff'.
Tom Williams | CQ Roll Call Group | Getty Images
Senate Majority Leader Harry Reid, makes his way to a meeting of the Senate Democratic Conference as Congress continues a weekend session in the hopes averting the 'fiscal cliff'.

After a day of talks that were expected to yield some sort of compromise on the so-called "fiscal cliff", Senate leaders called off any further votes until Monday morning, just hours before the deadline that will trigger across-the-board tax increases and dramatic cuts in military and domestic spending.

The Senate will meet again on New Year's Eve, the last full day before the "cliff" takes effect on Jan. 1. Negotiations were expected to continue in the meanwhile.

A day of wrangling in the Senate came and went without an accord to avoid the fiscal cliff, leaving lawmakers just a matter of hours to sort through thorny issues of taxes and spending that have beguiled Congress for the better part of the past two years.

Significant distance remains between the two sides and negotiations continue, although the clock continues to tick. Even a simple deal appears far from certain.

"There is still time left to reach an agreement, and we intend to continue negotiations," Senate Majority Leader Harry Reid, D-Nev., announced early Sunday evening. "We're going to come in at 11 a.m. tomorrow morning. We'll have further announcements, perhaps, at 11 in the morning. I certainly hope so."

As the Senate struggles to reach an agreement, House members — who were back in Washington on Sunday — were left awaiting any potential legislation from the upper chamber.

Reid and Senate GOP Leader Mitch McConnell had been tasked by President Barack Obama with developing a bare-bones deal to stave off the automatic tax hikes following the expiration of the 2001 Bush tax cuts at the end of the day on Monday.

But discussions between the leaders and their staff failed to produce an agreement. Democrats said that a main hangup involved what's known as "chained CPI," a re-calculation of how Social Security benefits grow in outlying years. Democrats regard that proposal, which Obama had previously offered to Republicans in the context of a broader bargain, as a "poison pill" if included in these last-ditch efforts.

The impasse prompted McConnell to reach out to Vice President Joe Biden, a former senator who's previously helped navigate congressional standoffs, in hopes of jump-starting negotiations. Biden was at the White House on Sunday afternoon.

But after each leader huddled with his respective party on Sunday, there were few indications of the type of breakthrough needed to end the stalemate in the Senate. Republicans, though, did appear to relent on any demand to include chained CPI in a final deal (though GOP officials denied they had ever seriously proposed it in the first place).

"We have as a conference have come out and said, if that's a show-stopper for the majority leader, we take that off the table," New Hampshire Sen. Kelly Ayotte said following the meeting with fellow Republicans.

The breakdown in negotiations sets the stage for one of the most dramatic days of political deal-making on Monday, the final day of 2012 and just three days before the next Congress — which won't affect control of either chamber but is slightly more Democratic — is sworn into office on Jan. 3.

House Speaker John Boehner, R-Ohio, had recalled House members to Washington for a series of rare weekend evening votes on Sunday. Those lawmakers had conceivably been asked to return to vote on whatever agreement Senate leaders might be able to forge. But absent any legislation, which would not come before Monday morning, House members' presence was largely superfluous.

Obama had asked Reid to prepare a vote on fallback legislation to preserve tax rates on income under $250,000 and extend expiring unemployment benefits in case Senate talks fell through. Democrats showed no signs of backing off that intention, though it is unclear whether Boehner would allow that legislation to even come to a vote in the House.

"Now the pressure's on Congress to produce," Obama said in an interview on NBC's "Meet the Press," which aired Sunday.

The hold-up on Capitol Hill appeared, though, to involve several unresolved issues. First, lawmakers must reach an agreement on the threshold of income beneath which current tax rates would be extended. Second, they must resolve what elements of spending — unemployment benefits, for instance — or commensurate cuts (to offset the cancellation of the automatic spending cuts, known as the sequester) to include in a final package.

"The biggest obstacle we face is that President Obama and Majority Leader Reid continue to insist on new taxes that will be used to fund more new spending, not for meaningful deficit reduction," Sen. Jeff Sessions, R-Ala., Republicans' budget chief, said in a statement.