Barack Obama has summoned congressional leaders for 11th-hour talks to avert a New Year budget crisis which threatens to drag America into recession.
The US President cut short his holiday in Hawaii to resume negotiations in the White House in an attempt to secure a deal to stop the country falling over the so-called fiscal cliff.
Time is running out for Mr Obama as the US lurches towards a New Year’s Day deadline, which will trigger automatic tax increases and spending cuts unless a plan can be agreed.
US leaders failed to reach agreement before Christmas amid a split over Democrat demands to cut deficit spending by raising taxes for wealthy earners and Republican plans to slash popular benefit programmes.
It is feared the world’s biggest economy could be tipped into recession if the tax rises and spending cuts are allowed to happen.
Data yesterday showing US consumer confidence plunging to its lowest level for a year highlighted the likely implications of a failure to strike a deal.
Financial markets have been under pressure amid the political stalemate, with London’s FTSE 100 Index slipping into the red once more today.
Joshua Mahony, research analyst at foreign exchange broker Alpari, said a concrete plan was “near enough impossible” given the differences between Republicans and Democrats and said any legislation drawn up now would probably only act as a temporary fix before more permanent measures could be agreed.
“A decision to delay would no doubt provide sufficient respite to the markets, yet this would be short-lived and in all likeliness simply set up another deadline to which politicians from each side can again play a political game of chicken,” he said.
The meeting will be the first time Mr Obama has gathered all the leaders of Congress since mid-November.
It is understood that Republicans and Democrats have said privately that elements of any agreement could include an extension of middle-class tax cuts with increased rates at upper incomes as well as cancellation of the scheduled spending cuts.
An extension of expiring unemployment benefits, a reprieve for doctors who face a cut in payments from the federal Medicare programme and possibly a short-term measure to prevent dairy prices from soaring could also become part of a year-end Bill.
If a deal cannot be struck, the US will see Bush-era tax cuts automatically expire on December 31 and revert to the higher rates in place during the administration of president Bill Clinton in the 1990s.
Senate Majority Leader Harry Reid has already warned that the US appeared to be headed over the year-end “fiscal cliff”.
He also slammed House of Representatives Speaker John Boehner for not immediately reconvening the House. Boehner called the House back into session for a highly unusual Sunday evening session.
Majority Leader Eric Cantor said the House could be in session until January 2, the day before the new congress is sworn in.
A spokesman for Mr Boehner issued a statement that said the speaker would attend and “continue to stress that the House has already passed legislation to avert the entire fiscal cliff and now the Senate must act”.
The issue has been Mr Obama’s first test of muscle after his re-election in November. Nearly all Americans and branches of the federal government, including the military, would be affected if the changes go through as scheduled.