Senate leaders racing against fiscal deadline

WASHINGTON - Senate leaders worked feverishly behind closed doors Saturday to avert the most painful parts of a looming fiscal crisis, debating which taxpayers could or should pay more as part of a deal that would ward off looming tax increases for everyone.

Senate Majority Leader Harry Reid (D., Nev.) and Senate Minority Leader Mitch McConnell (R., Ky.) were racing to forge a deal in time for votes Sunday night by both the Senate and the House of Representatives. Their aides met privately in a nearly deserted Capitol.

Lawmakers expected to be briefed by Sunday afternoon, though some were skeptical a compromise could be reached. Most lawmakers were absent Saturday, awaiting word from their leaders.

Failure to reach agreement by the end of the year Monday evening would mean that all Bush-era tax cuts would expire for all taxpayers, an Obama cut in the payroll tax for Social Security would expire, jobless benefits would dry up for two million unemployed, the alternative minimum tax would hit more taxpayers, Medicare payments to doctors would be cut, and $109 billion in federal government spending cuts would start, the first installment toward $1.2 trillion in cuts over two years.

At the center of the private talks Saturday was the question of which Bush-era tax cuts to extend, with Democrats pushing to extend only those on individual income below $200,000 and family income below $250,000, which would mean a tax increase for all income above that. Republicans had been pushing to extend all of the tax cuts, but people close to the talks said they would be open to taxing top wage earners, perhaps those making $400,000 or above - as Obama had offered as part of an earlier compromise offer.

Negotiators were discussing four other issues as part of a possible scaled-back package - unemployment benefits, the alternative minimum tax, Medicare payments to doctors and the extension of tax breaks offered to companies and individuals, according to a congressional aide familiar with the talks but not authorized to speak publicly.

But some of the painful measures were increasingly likely to take effect, at least temporarily.

No one was known to be pushing to extend the cut in the payroll tax, enacted as a temporary measure to put more cash in people's pockets in hopes of stimulating the economy. If the cut expires Monday night, every taxpayer would see his or her paycheck shrink as that tax goes back to 6.2 percent from 4.2 percent.

And a final deal was not expected to include changes to Social Security or Medicare, even though Democrats and Republicans had at one point agreed to apply a less-generous measure of inflation to the government programs to lower cost-of-living adjustments or an increase in the debt limit, which will be reached Monday.

The automatic cuts to spending would also likely go forward after House Republicans signaled that they would not agree to stop them unless or until they could forge a deal for long-term spending cuts.

If Reid and McConnell fail to reach any agreement, Obama will ask Congress to vote on his original proposal to raise taxes on individual income above $200,000 and family income above $250,000, and also to extend jobless benefits for two million unemployed workers.

"I believe such a proposal could pass both houses with bipartisan majorities - as long as these leaders allow it to come to a vote," he said in his weekly radio address Saturday. "If they still want to vote no, and let this tax hike hit the middle class, that's their prerogative - but they should let everyone vote. That's the way this is supposed to work."

As the talks commenced, Obama and Republicans went to the airways to restate their public positions one more time, either aiming to run up public pressure, or to lay the groundwork to blame the other party.