Last-minute efforts to step back from the "fiscal cliff" ran into trouble on Tuesday as Republicans in the House of Representatives balked at a deal that would prevent Washington from pushing the world's biggest economy into a recession.
Continue Reading Below
House Republicans complained that a bill passed by the Senate in a late-night show of unity to prevent a budget crisis contained tax hikes for the wealthiest Americans but no spending cuts. Some conservatives sought to change the bill to add cuts.
That would set up a high-stakes showdown between the two chambers and risk a stinging rebuke from financial markets that are due to open in Asia in a few hours.
The Senate would refuse to accept any changes to the bill, a Senate aide said, and it appeared increasingly possible that Congress could push the country over the fiscal cliff after all, despite months of effort.
Strictly speaking, the United States went over the cliff in the first minutes of the New Year because Congress failed to produce legislation to halt $600 billion of tax hikes and spending cuts that start kicking in on Jan. 1.
But with financial markets and federal government offices closed for the New Year's Day holiday, lawmakers had a little more time to work out a compromise without real-world consequences.
Continue Reading Below
The Senate bill drew overwhelming support from Republicans and Democrats alike when it passed by a vote of 89 to 8.
But Republicans who control the House expressed wide dismay with the measure, which includes only $12 billion in spending cuts along with $620 billion in tax increases on top earners.
Majority Leader Eric Cantor, the No. 2 Republican in the House, told reporters after huddling with other Republicans that he does not support the Senate's bill.
"The lack of spending cuts in the Senate bill was a universal concern amongst members in today's meeting. Conversations with members will continue throughout the afternoon on the path forward," said Cantor spokesman Rory Cooper.
Republicans returned for a second meeting at 5:15 p.m. EST (2215 GMT).
Republicans could face a backlash if they scuttle the deal. Income tax rates rose back to 1990s levels for all Americans at midnight, and across-the-board spending cuts on defense and domestic programs would begin to kick in on Wednesday.
Economists say the combination of tax cuts and spending cuts could cause the economy to shrink, and public opinion polls show Republicans would shoulder the blame.
Lingering uncertainty over U.S. fiscal policy has unnerved investors and depressed business activity for months.
Financial markets have staved off a steep plunge on the assumption that Washington would ultimately avoid pushing the country off the fiscal cliff into a recession.
Several Republicans said the fight could spill over until Wednesday, at which point they could be pressured by financial markets to accept the Senate bill.
"Everyone knows once the markets open tomorrow our courage drops in direct proportion to the market fall," said one Republican lawmaker who spoke on condition of anonymity.
The bill passed by the Democratic-led Senate at around 2 a.m. would raise income taxes on families earning more than $450,000 per year and limit the amount of deductions they can take to lower their tax bill.
Low temporary rates that have been in place for less-affluent taxpayers for the past decade would be made permanent, along with a range of targeted tax breaks put in place to fight the 2009 economic downturn.
However, workers would see up to $2,000 more taken out of their paychecks annually as a temporary payroll tax cut was set to expire.
The non-partisan Congressional Budget Office said the Senate bill would increase budget deficits by nearly $4 trillion over the coming 10 years, compared to the budget savings that would occur if the extreme measures of the cliff were to kick in.
But the bill would actually save $650 billion during that time period when measured against the tax and spending policies that were in effect on Monday, according to the Committee for a Responsible Federal Budget, an independent group that has pushed for more aggressive deficit savings.