Congress and the White House took small steps toward breaking the budget impasse Thursday, but Democrats and Republicans grew increasingly fearful they won't be able to avert the tax increases and spending cuts known as the fiscal cliff, a prospect that is unnerving consumers and investors.
President Barack Obama invited congressional leaders to the White House on Friday afternoon for a last-ditch effort to broker a deal, as the Senate returned to Washington on Thursday. House GOP leaders said in a Thursday conference call with Republicans, who are growing nervous about their party being blamed for the deadlock, that the House will reconvene Sunday evening.
It is still possible the two sides can reach a deal, especially with the leaders meeting Friday. Any resolution would be a scaled-back version of the package Mr. Obama and congressional leaders had anticipated passing after the November election. The White House is pressing for the Senate to extend current tax rates for income up to $250,000, extend unemployment benefits, keep the alternative minimum tax from hitting millions of additional taxpayers and delay spending cuts set to take effect in January.
The 11th-hour strategy carries enormous risk because it leaves no margin for error in Congress's balky legislative machinery. Senate Majority Leader Harry Reid (D., Nev.) said the prospects for passage of a bill before the last day of the year are fading rapidly. "I have to be very honest," he said. "I don't know time-wise how it can happen now."
Anxiety about Washington's ability to resolve its budget battles is roiling the economy. Conference Board figures showed that consumer confidence fell in December to its lowest level since August, driven by a pessimistic outlook for economic activity next year.
Stocks have swung on the latest news from Washington. The Dow Jones Industrial Average fell sharply on Mr. Reid's pessimistic comments before recouping most of a 151-point drop on news the House would reconvene this weekend.
At best, leaders are looking at a narrow bill that could be passed at the last minute. At the meeting Friday, Mr. Obama will outline the elements he thinks should be in a deal and could get majority support in both chambers of Congress, according to a person familiar with the matter. He won't put forward a specific bill or legislative language, the person added.
Missing the year-end deadline would mean an income-tax increase Jan. 1 for virtually all taxpayers and spending cuts of $110 billion in defense and domestic programs. For months, economists have warned that going over the cliff could thrust the U.S. back into recession.
Most officials say they believe any deal is most likely to emerge in the Senate. Senate Minority Leader Mitch McConnell (R., Ky.) left the door open to looking at a White House proposal, although noted the difficulty of "coming up against a hard deadline here."
Whether or not there is a deal, the weeks since the election have produced a stark display of political gridlock. "The government is not working," said Steve Bell, senior director of the Bipartisan Policy Center, who was a senior budget adviser to Senate Republicans for many years. "There is no doubt that the policy-making apparatus in this town has collapsed."
Following the tea-party wave in the 2010 election, the 112th Congress looks set to be the least productive in recent history. By the end of November, the House had passed 146 bills over the previous two years, by far the smallest number for any Congress since 1948. The Senate passed fewer bills in 2012 than in any year since at least 1992.
Rather than smoothing over differences, the November election appears to have hardened them. "We came out of the election with both sides thinking they won and had an equal mandate," said Ross Baker, a professor at Rutgers University who is now interviewing lawmakers on Capitol Hill for a book on bipartisanship. "One problem is we don't have a common narrative to guide us."
Mr. Obama and House Speaker John Boehner (R., Ohio) proclaimed a postelection desire to avoid the cliff and both sides made major concessions before negotiations collapsed last week. By then, they had reduced their differences to a range most congressional veterans could imagine being bridged in past eras when party leaders were more practiced at the art of compromise.
"We are at the point of no return," said Jim Manley, a former longtime aide to Mr. Reid, who also thinks it isn't possible to seal a deal before the deadline. "And so off the cliff the country will go."
Mr. Obama called Messrs. Boehner, McConnell, Reid and House Minority Leader Nancy Pelosi (D., Calif.) late Wednesday during his holiday vacation in Hawaii "to receive an update on the ongoing fiscal negotiations," White House spokeswoman Amy Brundage said.
The calls mark the first time Mr. Obama has called Mr. McConnell, who is now seen as key to brokering a deal, directly to discuss the fiscal cliff.
While the Senate returned from its Christmas holiday Thursday, it worked on legislation unrelated to the fiscal cliff. Mr. Reid taunted House Republican leaders for still being in recess, a criticism that stung some House Republicans, who complained to their leadership.
In their conference call Thursday afternoon, House GOP leaders announced they were calling members back into session Sunday evening in hopes that there would by then be a budget agreement to approve. They also told members to expect to stay in town through the following Friday, suggesting the possibility of a prolonged fight.
Republicans participating in the call said they believed GOP leaders were prepared to move quickly, if the fiscal cliff deadline is breached, to bring up legislation to reverse the tax increases and spending cuts retroactively. That action could be taken by a new session of Congress, which will be sworn in Jan. 3.
For all the economic anxiety about going over the fiscal cliff, there are political advantages to both parties for postponing action. There will be more Democrats in the new House and Senate. Mr. Boehner would have his re-election as speaker behind him, one of the first acts the new Congress will take. He has denied his job security is a concern, and no one has announced a campaign to challenge him.