Last chance to make a fiscal cliff deal

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WASHINGTON/HONOLULU (Reuters) - The United States on Wednesday edged closer to the "fiscal cliff" as Congress waited for President Barack Obama to return from vacation in Hawaii and make one final attempt to avoid huge tax hikes and spending cuts in the New Year.

In the absence of Obama, there was no sign of either side in Congress making an effort to strike a deal. The corridors of the Capitol building were empty except for an occasional police officer, and members' office doors stayed locked.

House of Representatives Speaker John Boehner has not yet set a date for bringing House members back to Washington from their Christmas break, an aide of the Republican leader said. That makes the timing of a vote on any budget deal before December 31 more difficult.

The Boehner aide also said there were no plans for new talks between the top Republican in Congress and Obama, who flies overnight and is due back in the White House on Thursday morning.

The inaction notwithstanding, there was still just enough time to prevent a fiscal crunch that would upset global financial markets and likely push the United States into recession.

Reports of lackluster retail holiday sales added to the urgency for a deal. Shoppers might be spending less this holiday season in fear of looming income tax increases. U.S. stocks fell on Wednesday, dragged lower by shares of retail companies.

A modest, last-minute measure in Congress to avoid deep spending cuts set for January 1 and most of the tax hikes could pass the Democratic-controlled Senate by the New Year, although Republicans would need to agree not use a procedural roadblock known as a filibuster.

But senators probably would not make the effort unless there was a strong signal from Boehner that the House would find a way to go along.
A Senate Democratic aide downplayed chances for votes this week in the Senate, but suggested there could be legislative movement at the weekend.
"We can't do anything until Republicans either give us the 60 votes," which are needed to advance legislation without long procedural delays, or allow a short-cut that lets bills pass on a simple majority vote in the 100-member chamber.
The focus in Congress is shifting from broad deficit reduction to narrower efforts to avert the immediate shock of the December 31 cliff dive.
"This is the (emergency) scenario that we have long believed would rise in probability the closer we go to December 31, which essentially calls for extending all the rates for those individuals making under $200K and households under $250K and does not address the debt ceiling or the deficit," analyst Chris Krueger of Guggenheim Securities wrote in a research note.
Republican Senator Kay Bailey Hutchison of Texas, who is retiring at year's end, told MSNBC that $250,000 "is too low of a threshold" for raising income taxes.
She said that in conversations she has had with some Senate Democrats, "they are saying maybe more in the $400,000 to $500,000 category."
Obama himself recently offered to raise the threshold to $400,000, before negotiations with Boehner broke off.
CLOCK TICKING
But even if a handful of Senate Republicans support Democrats on a measure to avoid the worst of the fiscal cliff, time is short.
When the Senate returns on Thursday it is due to work on a disaster aid bill to help New York and New Jersey recover from Superstorm Sandy and other measures.
In the Republican-controlled House, any bill that raises taxes on anyone would need a rare bipartisan vote to win approval.
All 191 Democrats might have to team up with at least 26 Republicans to get a majority if the bill included tax hikes on the wealthiest Americans, as Obama is demanding.
Some of those votes could conceivably come from among the 34 Republican members who are either retiring or were defeated in the November elections and no longer have to worry about the political fallout.
An alternative is for Congress to let income taxes go up on everyone as scheduled. Then, during the first week of January, lawmakers would strike a quick deal to reduce them except on people in the highest brackets.
They would also pass a measure putting off the $109 billion in automatic spending cuts that most lawmakers want to avoid.

Once the clock ticks past midnight on December 31, no member of Congress would have to vote for a tax increase on anyone - taxes would have risen automatically - and the only votes would be to decrease tax rates for most Americans back to their 2012 levels.

Americans' optimism that Obama and congressional leaders will reach a budget agreement before January 1 has waned in recent days, according to a Gallup poll.

Fifty percent believe a deal will be reached, a drop of 7 percentage points from the previous week, and 48 percent are doubtful. The poll was taken just after talks ran into trouble last week.

Starbucks Chief Executive Howard Schultz is urging workers in the company's roughly 120 Washington-area coffee shops to write "come together" on customers' cups on Thursday and Friday to send a message to politicians.

"We're paying attention, we're greatly disappointed in what's going on and we deserve better," Schultz told Reuters.

(Additional reporting by Thomas Ferraro and Richard Cowan in Washington and Lisa Baertlein in Los Angeles, Writing by Alistair Bell; Editing by Xavier Briand)

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