WASHINGTON: US President Barack Obama said Friday he was "modestly optimistic" a deal could be agreed with Republicans to head off a "fiscal cliff" crisis that could trigger a recession and rock global markets.
Obama said after meeting top congressional leaders that Senate Democrats and Republicans would work overtime this weekend to try to head off a $500 billion time bomb of tax hikes and spending cuts before a January 1 deadline.
"We had a constructive meeting today," Obama said. "I'm modestly optimistic that an agreement can be achieved."
Obama said that Democratic Senate Majority leader Harry Reid and Republican minority leader Mitch McConnell would try to seal a deal on shielding the middle class from higher taxes due to come into force on Tuesday.
But he warned that if they failed, he would demand a vote in Congress on his own suggestion, to raise taxes on all American families earning over $250,000 a year and for an extension of unemployment insurance for two million people.
Such a scenario would leave Republicans in a tough political spot as if they refuse, it would be easy for the White House to blame them for the economy toppling over the cliff.
Obama also vented frustration that America's dysfunctional political system meant a slog through the Christmas and New Year vacation after it failed to come up with a deal until just before Tuesday's deadline.
"Ordinary folks, they do their jobs. They meet deadlines. They sit down and they discuss things and then things happen.
"The notion that our elected leadership can't do the same thing is mind-boggling to them. It needs to stop."
McConnell said after the talks, also involving Republican House Speaker John Boehner and Democratic House minority leader Nancy Pelosi that he was "hopeful and optimistic."
An aide to Boehner said the talks focused on "potential options and components for a plan that could pass both chambers of Congress" and said the speaker told Obama that the Senate must go first, before the House acts.
Earlier, Wall Street picked up pessimistic signs before Obama's talks.
The Dow Jones Industrial Average dropped 158.20 points or 1.21 percent, as Washington's perennial gridlock threatened to deal what Obama described as a "politically self-inflicted wound" to the economy.
If no deal is reached by January 1, all Americans will face a tax hike and massive and automatic budget cuts will come into force which budget experts say could trigger a new US recession and cause a spike in unemployment.
It is not clear whether the Obama plan would avert the massive automatic spending cuts or deal with his separate request to raise the $16 trillion ceiling on government borrowing.
Republicans want to extend George W. Bush-era tax cuts due to expire on Tuesday for everyone and accuse the president of failing to offer meaningful spending cuts in a bargain in return for them agreeing to raise revenues.
Some top lawmakers clung to hope.
Republican Senator Bob Corker earlier complained Obama and Democrats in Congress had balked at cutting spending on social programs weighing on the budget and inflating the deficit.
"We're going to end up with a small, kick-the-can-down-the-road bill that creates another fiscal cliff to deal with this fiscal cliff. How irresponsible is that?" Corker told reporters.
Retiring Democratic Senator Ben Nelson had warned: "If this meeting is not successful in achieving a proposal, I think you need to get a parachute."
Obama broke off his vacation in Hawaii in search of a last-minute deal and Boehner called the House back to work on Sunday.
It is questionable if any package could pass the House as restive conservatives last week rebuked Boehner by rejecting his fallback plan that would have raised taxes on people earning $1 million.
While each side must for the sake of appearances be seen to be seeking a deal, the easiest way out of the mess might be to allow the economy to go over the cliff, but to fix the problem in the first few days of next year.
In that scenario, Republicans, who are philosophically opposed to raising taxes, could back a bill to lower the newly raised rates on almost all Americans, thus sidestepping the stigma of raising taxes.
Recent polls show a majority of Americans back Obama's handling of the crisis, and would blame Republicans for a failure to fix it, so the president could get a short-term political boost from an early deal next year.
Should the stalemate linger however, the crisis would cloud the early months of Obama's second term, would dent his popularity and could detract from his key political goals like immigration reform and gun control.
-AFP/ac
