U.S. leaders still at impasse over ‘fiscal cliff’

WASHINGTON — With little resolution immediately in sight, U.S. leaders were heading into the final day to find a solution to the so-called ‘fiscal cliff’ late Sunday.

Senate Majority Leader Harry Reid rejected the latest Republican offer to resolve the U.S. fiscal crisis as Minority Leader Mitch McConnell reached out to Vice President Joe Biden in an effort to break the impasse.

“The sticking point appears to be a willingness or interest or frankly, the courage to close the deal,” Mr. McConnell, a Kentucky Republican, said on the Senate floor Sunday. “I’m willing to get this done, but I need a dance partner.”

Congress is working to avert more than US$600-billion in tax increases and federal spending cuts, the so-called fiscal cliff, set to start taking effect in two days. The House and Senate are holding an unusual Sunday session after President Barack Obama on Dec. 28 asked Mr. Reid and Mr. McConnell to try to find a solution.

Regarding talks between Messrs. McConnell and Biden, Mr. Reid said, “I wish them well.” Mr. Biden is at the White House, according to an administration official who spoke on condition of anonymity.

During an interview broadcast earlier today on NBC’s “Meet the Press,” Mr. Obama made a last-minute appeal for compromise and warned of “an adverse reaction in the markets” if Congress doesn’t act.

Republicans “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. He said his offers to Republicans have been “so fair that a lot of Democrats get mad at me.”

In a statement, House Speaker John Boehner, an Ohio Republican, called Mr. Obama’s comments “ironic, as a recurring theme of our negotiations was his unwillingness to agree to anything that would require him to stand up to his own party.”

The setback followed 24 hours of progress toward a deal, according to a Democratic aide familiar with the talks. During the previous two days, Messrs. Reid and McConnell had been closing in on agreement on a threshold for letting income tax rates increase for top earners and narrowing differences over the estate tax, the aide said.

Republicans and Democrats agree that George W. Bush-era income tax cuts should be extended for the vast majority of taxpayers. Mr. Obama and other Democrats want to let the tax cuts expire for the top 2%, or married couples earning more than US$250,000 a year. Republicans oppose higher tax rates for any income level.

In the event the Senate can’t reach a compromise, Obama has asked Reid to ready a bare-bones bill for a vote by Monday to extend expanded unemployment benefits and tax cuts on family income up to US$250,000.

In that scenario, Obama said on NBC, “Republicans will have to decide if they’re going to block it, which will mean that middle-class taxes do go up.” Any compromise needs to be passed by the Republican-controlled House of Representatives.

If Congress does nothing, taxes will rise in 2013 by an average of US$3,446 for U.S. households, according to the nonpartisan Tax Policy Center in Washington.

Tax filing for as many as two-thirds of U.S. taxpayers could be delayed into at least late March. Defense spending would be cut, and the economy would probably enter a recession in the first half of 2013, according to the Congressional Budget Office.

The effects of the higher tax rates and federal spending cuts would accumulate over a matter of months. Congress could reverse them by acting retroactively in 2013.

The current state of talks isn’t necessarily ominous, said Senator Olympia Snowe of Maine, a Republican.

“The one thing Congress is predictable about, and that is waiting until the very last hour, and maybe it is going to be the eleventh hour,” she said. “We got one more day.”

Bloomberg News

GOP Gives In On Social Security Cuts

WASHINGTON — Tense “fiscal cliff” negotiations on Capitol Hill Sunday inched forward slightly as Republican senators agreed to take Social Security cuts off their list of immediate demands.

The cut that GOP leaders had proposed — picking up on a now-defunct offer from President Barack Obama — involved basing Social Security cost-of-living adjustments on a chained consumer price index (CPI), which grows more slowly than current measures of inflation and therefore would give seniors less in benefits as time went on.

But Senate Republicans realized in a caucus meeting Sunday afternoon that the idea was a loser for now, even if they might return to it in reaching a larger deal later on.

“CPI has to be off the table because it’s not a winning argument to say benefits for seniors versus tax breaks for rich people,” said Sen. John McCain (R-Ariz.). “We need to take CPI off the table — that’s not part of the negotiations — because we can’t win an argument that has Social Security for seniors versus taxes for the rich.”

“There’s a realization that in spite of the president’s apparent endorsement of a chained CPI that that proposal deserves more study,” said Sen. Susan Collins (R-Maine). “My guess, based on what Democrats are saying is that that reform would not happen during this stage of the negotiations.”

A Democratic aide, informed of the reversal from a proposal that Senate Minority Leader Mitch McConnell (R-Ky.) had offered late Saturday — which included the Social Security cut — took it as a hopeful sign.

“Well, that’s some progress,” said the aide, who was granted anonymity due to the sensitivity of the talks.

Senate Majority Leader Harry Reid (D-Nev.) told reporters after the Democrats met in the Capitol that they had made a counteroffer, although he did not say what.

A chained CPI is based on the idea that if one product becomes more expensive — steak, for instance — consumers will switch to a cheaper substitute — say, chicken — thereby spending the same amount for food. The chained CPI would make the same switch, dropping steak from its measure of inflation and replacing it with chicken, resulting in a lower tally of inflation and, if linked to Social Security, lower payments to seniors.

The GOP would like to institute this limited inflation measure at some point, even if they have to wait for a broader debt, deficit and tax reform plan next year.

“We do expect it to be part of the debt ceiling negotiations,” said Sen. Bob Corker (R-Tenn.), in a signal that extending the nation’s borrowing limit — which the United States has nearly reached — will not be part of any imminent deal.

“Chained CPI would be to stabilize Social Security,” Sen. Kay Bailey Hutchison (R-Texas) said. “That’s not the way it’s being portrayed, and therefore I think it should be dropped. And I think all the Republicans agreed to that.”

“I don’t think anybody ever expected Social Security to be part of this,” added Sen. John Cornyn (R-Texas), referring to a last-ditch deal this year. “It’s all going to be about taxes of some kind or another.”

There were some glimmers of bipartisan agreement on what may or may not end up in a pared-down deal. Hutchison said lawmakers in both parties had essentially settled on extending the Bush income tax cuts below the $400,000 or $500,000 threshold. She also said the estate tax isn’t “the real hang-up” for most people.

Instead, Hutchison and several other GOP lawmakers said, a major sticking point for Republicans remains a Democratic proposal to impose a two-year moratorium on the major spending cuts mandated by sequestration while, separately, using new tax revenue for new government spending.

“I think the hurdles are that you can’t use tax increases on anyone to pay for more spending,” she told reporters. “You have to have a component in there of deficit reduction.”

“[Democrats are] not interested at this point in talking about any entitlement reforms,” said Sen. Roy Blunt (R-Mo.), who described the mood of his conference as leaning “heavily” toward frustration. “I believe Senator McConnell can and will say, with equal certainty, that we’re not interested in taking new tax revenue to pay for new spending.”

The fiscal cliff is the combination of the expiring Bush-era tax cuts and the impending across-the-board spending cuts Congress mandated when it last agreed to raise the debt ceiling. The tax cuts expire and the government is required to start cutting about $100 billion after the new year.

Democrats have been insistent on preserving the Bush-era tax rates on income below $250,000. They seemed more pessimistic about achieving a deal.

Asked if he thought there would be an agreement on Sunday, Sen. Jay Rockefeller (D-W.Va.) said no.

“I’m going to stick around another hour just to see what happens,” he said, leaving his party’s caucus meeting in the afternoon.

UPDATE: 6:09 p.m. — Reid later appeared on the Senate floor to signal that Rockefeller was correct in his assessment there would be no breakthrough Sunday.

“There is still significant distance between the two sides, but negotiations continue. There’s still time left to reach an agreement,” Reid said, announcing that the Senate would return on Monday, New Year’s Eve. “We’ll have further announcements, perhaps, at 11 in the morning.”

That would leave just 13 hours to finish a deal with the House, which is far from guaranteed with a chamber led by Republicans adamantly opposed to any tax hikes.

Ryan Grim contributed reporting.

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UPDATE 1-Private equity firms to buy Duff & Phelps for $665 mln

NEW YORK, Dec 30 (Reuters) – A group of private equity
firms, including the Carlyle Group, struck a deal on
Sunday to buy financial advisory and investment banking firm
Duff & Phelps Corp for about…