The White House on Friday tried to rescue stalled talks on a fiscal crisis after a Republican plan imploded in Congress, but there was little headway as lawmakers and President Barack Obama abandoned Washington for Christmas.
In remarks before flying to Hawaii for a break, Obama suggested reaching a short-term deal on taxes and extending unemployment insurance to avoid the worst effects of the "fiscal cliff" on ordinary Americans at the start of the New Year. "We've only got 10 days to do it. So I hope that every member of Congress is thinking about that. Nobody can get 100 percent of what they want," said Obama.
Obama said he wanted to sign legislation extending Bush-era tax cuts for 98 percent of Americans in the coming days. The Democrat appeared to be offering bickering lawmakers a way to fix the most pressing challenge - tax cuts that expire soon - while leaving thorny topics such as automatic spending cuts or extending the debt ceiling for later.
Obama called on lawmakers to use the holiday break to cool off frayed nerves, "drink some eggnog, have some Christmas cookies, sing some Christmas carols," and come back next week ready to make a deal.
Negotiations were thrown into disarray on Thursday when House of Representatives Speaker John Boehner failed to convince his fellow Republicans to accept tax cuts for even the wealthiest of Americans as part of a possible agreement with Obama. "How we get there, God only knows," Boehner told reporters on Friday when asked about a possible comprehensive fiscal cliff solution.
If there is no agreement, taxes would go up on all Americans and hundreds of billions of dollars in automatic government spending cuts would kick in next month - actions that could plunge the U.S. economy back into recession.
Obama spoke to Boehner on Friday and held a face-to-face White House meeting with the top Democrat in Congress, Senate Majority Leader Harry Reid. Before his defeat in Congress, Boehner had extracted a compromise from Obama to raise taxes on Americans making more than $400,000 a year, instead of the president's preference of those with income of $250,000 a year.
But with talks stalled on the level of spending cuts to which Obama would agree, Boehner attempted a backup plan to raise taxes only on those making more than $1 million a year - amounting to just 0.18 percent of Americans.
BAD DEFEAT FOR BOEHNER
Boehner's reverse in the House was worse than first thought. A key Republican lawmaker said Boehner scrapped the vote when he realized that between 40 and 50 of the 241 Republicans in the House would not back him. Obama and his fellow Democrats in Congress are insisting that the wealthiest Americans pay more in taxes in order to help reduce federal budget deficits and avoid deep spending cuts. Republicans control the House and Democrats control the Senate.
Stocks dropped sharply early Friday on fears the U.S. could go fall back into recession if politicians do not prevent it. But major indexes lost less than 1 percent, suggesting investors still held out hope that an agreement will be brokered in Washington. "I think if you get into mid-January and (the talks) keep going like this, you get worried, but I don't think we're going to get there," said Mark Lehmann, president of JMP Securities, in San Francisco.
Boehner, joined by his No. 2, Eric Cantor, at a Capitol Hill news conference, said the ultimate fault rests with Obama for refusing to agree to more spending reductions that would bring down America's $1 trillion annual deficit and rising $16 trillion debt. "What the president has proposed so far simply won't do anything to solve our spending problem. He wants more spending and more tax hikes that will hurt our economy," Boehner said.
Democrats responded with incredulity. House members, heading to their home states for the holidays, were instructed to be available on 48 hours notice if necessary. "They went from 'Plan B' to 'plan see-you-later,'" Obama adviser David Axelrod said on MSNBC on Friday morning.
The crumbling of Boehner's plan highlights his struggle to lead some House Republicans who flatly reject any deal that would increase taxes on anyone. Republican Representative Tim Huelskamp criticized Boehner's handling of the negotiations, saying the speaker had "caved" to Obama opening the door to tax hikes. Huelskamp, a dissident first-term congressman from Kansas, said he was not willing to compromise on taxes even if they are coupled with cuts to government spending sought by conservatives.
Fiscal conservatives "are so frustrated that the leader in the House right now, the speaker, has been talking about tax increases. That's all he's been talking about," Huelskamp said on MSNBC on Friday morning.
(Additional reporting by Richard Cowan, Rachelle Younglai, Thomas Ferraro and Matt Spetalnick of Reuters; writing by Steve Holland)