U.S. leaders are edging closer to an end-of-the-year "fiscal cliff" - sharp, mandated government spending cuts and tax increases for most American workers that could plunge the country into another recession if a compromise is not reached.
Congressional leaders continued to work Sunday to negotiate a pact that would keep tax rates at their current level for all but the wealthiest wage earners, rather than have them revert on New Year's Day to much higher levels set in the 1990s.
Both the Senate and House scheduled unusual Sunday sessions to vote on any compromise legislation their leaders might be able to craft in negotiations with the White House. In his weekly address Saturday, U.S. President Barack Obama pressured Congress to act, saying the country's economy would be damaged if tax rates increase.
"We just can’t afford a politically self-inflicted wound to our economy," he said. "The economy is growing, but keeping it that way means that the folks you sent to Washington have to do their jobs. The housing market is healing, but that could stall if folks are seeing smaller paychecks. The unemployment rate is the lowest it’s been since 2008, but already, families and businesses are starting to hold back because of the dysfunction they see in Washington."
Watch President Obama's weekly address:
Resolution of tax and spending issues has long stymied Washington leaders, with Obama's Democratic Party colleagues mostly favoring higher taxes to fund popular social welfare programs, while Republican Party lawmakers adamantly oppose tax increases, even for the wealthiest Americans.
What is the U.S. Fiscal Cliff?
An agreement intended to force politicians to compromise and make deals.
Without a deal by January 1, 2013, sharp spending cuts would hit military and social programs.
Tax hikes also would go into effect.
The combination would reduce economic activity, and could boost unemployment and push the nation back into recession.
The negotiators are also grappling with decisions on other key issues, including unemployment benefits, taxes on large inheritances and possible cuts in payments to doctors who treat elderly Americans.
Even if the Democratic-controlled Senate votes for a compromise deal, the Republican-led House of Representatives would also have to approve the measure. Passage of tax-and-spending legislation there is far from certain.
However, if Congress can agree on a compromise, the president could sign the measure late Monday, which would avoid having automatic tax increases on nearly all Americans kick in Tuesday.
Neither side has publicly given any indication that a deal can be reached.
Even if a deal is reached, however, it is unlikely to increase the U.S. government's current borrowing limit of $16.4 trillion. Treasury Secretary Timothy Geithner says the nation's debt ceiling will be reached Monday, New Year's Eve. The ceiling is a cap on how much money the government can borrow to avoid defaulting on its debt.
Geithner says Treasury officials will take what he calls "extraordinary measures" under the law to avoid default.
The Congress and White House are then expected to negotiate a new limit in the next couple months, although it, too, will likely produce a contentious debate over Washington's spending priorities.
Some information for this report was provided by AP, AFP and Reuters.