Bigger fights loom after tax deadline deal

(Note language, paragraph 12)

WASHINGTON (Reuters) - President Barack Obama and congressional Republicans face even bigger budget battles in the next two months after a hard-fought "fiscal cliff" deal narrowly averted devastating tax hikes and spending cuts.

The agreement, approved late on Tuesday by the Republican-led House of Representatives, was a victory for Obama, who had won re-election on a promise to address budget woes in part by raising taxes on the wealthiest Americans.

But it set up potentially bruising showdowns over the next two months on spending cuts and an increase in the nation's limit on borrowing. Republicans, angry that the "fiscal cliff" deal did little to curb the federal deficit, promised to use the debt-ceiling debate to win deep spending cuts next time.

Republicans believe they will have greater leverage over Democrat Obama when they must consider raising the borrowing limit, likely in February.

The stakes are perhaps even higher in the debt issue than in the fiscal cliff because failure to close a deal could mean a default on U.S. debt or another downgrade in the U.S. credit rating. A similar showdown in 2011 ultimately led to a credit downgrade.

In fact, bond rating agency Moody's Investors Service warned Washington on Wednesday it must do more to cut the deficit than it did in the "fiscal cliff" measure if the country is to turn around its negative sovereign debt rating.

Republican Senator Pat Toomey of Pennsylvania said his party had to be ready to do whatever it takes to get spending cuts.

"Our opportunity here is on the debt ceiling," Toomey said on MSNBC. "We Republicans need to be willing to tolerate a temporary, partial government shutdown, which is what that could mean."

Yet Obama may be emboldened by winning the first round of fiscal fights when dozens of House Republicans buckled and voted for major tax hikes for the first time in two decades.

Deteriorating relations between leaders in the two parties during the fiscal cliff episode do not bode well for the more difficult fights ahead.

Vice President Joe Biden and Republican Senate leader Mitch McConnell had to step in to work out the final deal amid frayed relations between House Speaker John Boehner and Obama.

Obama Praises Deal, Says There's More to Be DonePresident Obama is praising the bill that staves off the fiscal cliff tax hikes and spending cuts. The House of Representatives followed the Senate's lead, and passed the bill late Tuesday. (Jan. 2)

Senate Democratic leader Harry Reid also drew the ire of Boehner, who told Reid in the White House to "Go fuck yourself" after a tense meeting last week, aides said. His retort came after the Democrat accused Boehner of running "dictatorship" in the House.

Bemoaning the intensity of the fiscal cliff fight, Obama urged "a little less drama" when the Congress and White House next address budget issues like the government's rapidly mounting $16 trillion debt load. He vowed to avoid another divisive debt-ceiling fight ahead of the late-February deadline for raising the limit.

"While I will negotiate over many things, I will not have another debate with this Congress about whether or not they should pay the bills they have already racked up," Obama said before he headed to Hawaii to resume an interrupted vacation.

NOT TIME TO CELEBRATE

Analysts warned that might not be so easy. "While the markets and most taxpayers may breathe a sigh of relief for a few days, excuse us for not celebrating," said Greg Valliere, chief political strategist at Potomac Research Group.

"We have consistently warned that the next brawl represents a far greater threat to the markets - talk of default will grow by February, accompanied by concerns over a credit rating downgrade," he said.

Financial markets that had been worried about the fiscal cliff showdown welcomed the deal, with U.S. stocks rising on the first day of trading in 2013.

All 10 S&P 500 industry sector indexes rose at least 1 percent, led by the information technology index, up 2.2 percent. Among the strongest names in the sector was Hewlett-Packard, which rose 5.3 percent to $15 after a miserable 2012 when the stock fell nearly 45 percent.

Debate over entitlement programs is also bound to be fraught. Republicans will be pushing for significant cuts in healthcare programs like Medicare and Medicaid for retirees and the poor, which are the biggest drivers of federal debt. Democrats have opposed cuts in those popular programs.

"This is going to be much uglier to me than the tax issue ... this is going to be about entitlement reform," Republican Senator Bob Corker of Tennessee said on CNBC.

"This is the debate that's going to be far more serious. Now that we have this other piece behind us - hopefully - we'll deal in a real way with the kinds of things our nation needs to face," he said.

The fiscal cliff crisis ended when dozens of Republicans in the House of Representatives relented and backed a bill passed by the Democratic-controlled Senate that hiked taxes on households earning more than $450,000 annually. Spending cuts of $109 billion in military and domestic programs were delayed only for two months.

Economists had warned that the fiscal cliff of across-the-board tax hikes and spending cuts would have punched a $600 billion hole in the economy this year and threatened to send the country back into recession.

Dozens of House Republicans reluctantly approved the Senate bill which passed by a bipartisan vote of 257 to 167 and sent it on to Obama to sign into law.

Peter Huntsman, chief executive of chemical producer Huntsman Corp, said the vote does little to reduce the U.S. budget deficit and will hinder growth.

"We haven't even begun to address the basic issues behind this," Huntsman told Reuters. "We haven't fixed anything. All we've done is addressed the short-term pain.

The vote underlined the precarious position of Boehner, who will ask his Republicans to re-elect him as speaker on Thursday when a new Congress is sworn in. Boehner backed the bill but most House Republicans, including his top lieutenants, voted against it.

The Ohio congressman also drew criticism on Wednesday from his fellow Republicans for failing to schedule a House vote on a bill passed by the Senate that would provide federal aid to Northeastern states hit by the storm Sandy.

(Additional reporting by Susan Heavey, Richard Cowan in Washington and Gabriel Debenedetti and Ernest Scheyder in New York, Editing by Alistair Bell)

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Bigger fights loom after tax deadline deal

WASHINGTON (Reuters) - President Barack Obama and congressional Republicans looked ahead on Wednesday toward the next round of even bigger budget fights after reaching a hard-fought "fiscal cliff" deal that narrowly averted potentially devastating tax hikes and spending cuts.

The agreement, approved late on Tuesday by the Republican-led House of Representatives after a bitter political struggle, was a victory for Obama, who had won re-election on a promise to address budget woes in part by raising taxes on the wealthiest Americans.

But it set up political showdowns over the next two months on spending cuts and on raising the nation's limit on borrowing. Republicans, angry the deal did little to curb the federal deficit, promised to use the debt ceiling debate to win deep spending cuts next time.

"Our opportunity here is on the debt ceiling," Republican Senator Pat Toomey of Pennsylvania said on MSNBC, adding Republicans would have the political leverage against Obama in that debate. "We Republicans need to be willing to tolerate a temporary, partial government shutdown, which is what that could mean."

Republicans, who acknowledged they had lost the fiscal cliff fight by agreeing to raise taxes on the wealthy without gaining much in return, vowed the next deal would have to include significant cuts in government benefit programs like Medicare and Medicaid health care for retirees and the poor that were the biggest drivers of federal debt.

"This is going to be much uglier to me than the tax issue ... this is going to be about entitlement reform," Republican Senator Bob Corker of Tennessee said on CNBC.

"This is the debate that's going to be far more serious. Hopefully, now that we have this other piece behind us - hopefully - we'll deal in a real way with the kinds of things our nation needs to face," he said.

Obama urged "a little less drama" when the Congress and White House next address thorny fiscal issues like the government's rapidly mounting $16 trillion debt load.

The fiscal cliff showdown had worried businesses and financial markets, and U.S. stocks soared at the opening after lawmakers agreed to the deal.

The Dow Jones industrial average surged 262.45 points, or 2.00 percent, at 13,366.59. The Standard & Poor's 500 Index was up 29.79 points, or 2.09 percent, at 1,455.98. The Nasdaq Composite Index was up 77.45 points, or 2.57 percent, at 3,096.97.

The crisis ended when dozens of Republicans in the House of Representatives buckled and backed a bill passed by the Democratic-controlled Senate that hiked taxes on households earning more than $450,000 annually. Spending cuts of $109 billion in military and domestic programs were delayed only for two months.

Economists had warned the fiscal cliff of across-the-board tax hikes and spending cuts would have punched a $600 billion hole in the economy this year and threatened to send the country back into recession.

Obama Praises Deal, Says There's More to Be DonePresident Obama is praising the bill that staves off the fiscal cliff tax hikes and spending cuts. The House of Representatives followed the Senate's lead, and passed the bill late Tuesday. (Jan. 2)

RELUCTANT REPUBLICANS

House Republicans had mounted a late effort to add hundreds of billions of dollars in spending cuts to the package and spark a confrontation with the Senate, but it failed.

In the end, they reluctantly approved the Senate bill by a bipartisan vote of 257 to 167 and sent it on to Obama to sign into law. "We are ensuring that taxes aren't increased on 99 percent of our fellow Americans," said Republican Representative David Dreier of California.

The vote underlined the precarious position of House Speaker John Boehner, who will ask his Republicans to re-elect him as speaker on Thursday when a new Congress is sworn in. Boehner backed the bill but most House Republicans, including his top lieutenants, voted against it.

The speaker had sought to negotiate a "grand bargain" with Obama to overhaul the U.S. tax code and rein in health and retirement programs that will balloon in coming decades as the population ages.

But Boehner could not unite his members behind an alternative to Obama's tax measures.

Income tax rates will now rise on individuals earning more than $400,000 and families earning more than $450,000 per year, and the amount of deductions they can take to lower their tax bill will be limited.

Low temporary rates that have been in place for the past decade will be made permanent for less-affluent taxpayers, along with a range of targeted tax breaks put in place to fight the 2009 economic downturn.

However, workers will see up to $2,000 more taken out of their paychecks annually with the expiration of a temporary payroll tax cut.

The non-partisan Congressional Budget Office said the bill will increase budget deficits by nearly $4 trillion over the coming 10 years, compared to the budget savings that would occur if the extreme measures of the cliff were to kick in.

But the measure will actually save $650 billion during that time period when measured against the tax and spending policies that were in effect on Monday, according to the Committee for a Responsible Federal Budget, an independent group that has pushed for more aggressive deficit savings.

(Additional reporting by Susan Heavey and Richard Cowan; Editing by Jackie Frank)

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House faces test on ‘fiscal cliff’ deal

Vice President Joe Biden gives two thumbs up following a Senate Democratic caucus meeting about the fiscal cliff …The Republican-held House of Representatives faced a tough vote Tuesday on a last-minute “fiscal cliff” compromise to cut taxes on all but the richest Americans and stall some painful spending cuts.  The deal, cut in secret weekend talks and passed by the Senate by a lopsided 89-9 margin shortly after 2 a.m. New Year's Day, could face stiff opposition from conservatives who hoped it would contain more spending cuts and liberals who wanted to raise more taxes.

Financial markets were closed for the holiday, but lawmakers were keenly aware of the potential impact of failing to address the so-called cliff, which some experts warned could plunge the still-fragile economy into a new recession.

Vice President Joe Biden, who took the lead for Democrats in negotiating the deal over the weekend with Republican Senate Minority Leader Mitch McConnell, was scheduled to join House Democrats at a behind-closed-doors meeting at 12:15 p.m. Biden paid a similar call on Senate Democrats late Monday.

House Republicans were also slated to huddle behind the scenes to discuss what to do about the Senate-passed measure. The anti-tax Club for Growth warned lawmakers to oppose the compromise because “this bill raises taxes immediately with the promise of cutting spending later.”

Under the compromise arrangement approved by the Senate, taxes would rise on income above $400,000 for  individuals and $450,000 for households, while exemptions and deductions the wealthiest Americans use to reduce their tax bill would face new limits. The accord would also raise the taxes paid on large inheritances from 35% to 40% for estates over $5 million. And it would extend by one year unemployment benefits for some two million Americans. It would also prevent cuts in payments to doctors who treat Medicare patients and spare tens of millions of Americans who otherwise would have been hit with the Alternative Minimum Tax.

The middle class will still see its taxes go up: The final deal did not include an extension of the payroll tax holiday. And the overall package will deepen the deficit by an estimated $3.9 trillion dollars by extending the overwhelming majority of the Bush tax cuts. Many Democrats had opposed those measures in 2001 and 2003. Obama agreed to extend them in 2010.

Efforts to modify the first installment of $1.2 trillion in cuts to domestic and defense programs over 10 years -- the other portion of the “fiscal cliff,” known as sequestration -- had proved a sticking point late in the game. Democrats had sought a year-long freeze but ultimately caved to Republican pressure and signed on to just a two-month delay while broader deficit-reduction talks continue.

That would put the next major battle over spending cuts right around the time that the White House and its Republican foes are battling it out over whether to raise the country's debt limit. Republicans have vowed to push for more spending cuts, equivalent to the amount of new borrowing.

Obama has vowed not to negotiate as he did in 2011, when a bruising fight threatened the first-ever default on America's obligations and resulted in the first-ever downgrade of the country's credit rating. Biden sent that message to Democrats in Congress, two senators said.

“This agreement is the right thing to do for our country and the House should pass it without delay,” President Barack Obama said in a written statement shortly after the Senate vote.

There were signs that the 2016 presidential race shaped the outcome in the Senate. Republican Senator Marco Rubio, widely thought to have his eye on his party’s nomination, voted no. Republican Senator Rand Paul, who could take up the libertarian mantle of his father Ron Paul, did as well. Observers were watching to see how Republican Rep. Paul Ryan, the Budget Committee chairman and his party's failed vice presidential nominee in 2012, would vote Tuesday.

In remarks just before the Senate adopted the compromise, McConnell repeatedly called the agreement “imperfect” but said it beat allowing income tax rates rise across the board.

“I know I can speak for my entire conference when I say we don’t think taxes should be going up on anyone, but we all knew that if we did nothing they’d be going up on everyone today,” he said. “We weren’t going to let that happen.”

“Our most important priority was to protect middle-class families. This legislation does that,” Democratic Senate Majority Leader Harry Reid said. But Reid cautioned that “passing this agreement does not mean negotiations halt. Far from it.”

The House’s Republican leaders, including Speaker John Boehner, hinted in an unusual joint statement that they might amend anything that clears the Senate – a step that could kill the deal.

“Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members -- and the American people -- have been able to review the legislation,” they said.

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House faces test on ‘fiscal cliff’ deal

Vice President Joe Biden gives two thumbs up following a Senate Democratic caucus meeting about the fiscal cliff …The Republican-held House of Representatives faced a tough vote Tuesday on a last-minute “fiscal cliff” compromise to cut taxes on all but the richest Americans and stall some painful spending cuts.  The deal, cut in secret weekend talks and passed by the Senate by a lopsided 89-9 margin shortly after 2 a.m. New Year's Day, could face stiff opposition from conservatives who hoped it would contain more spending cuts and liberals who wanted to raise more taxes.

Financial markets were closed for the holiday, but lawmakers were keenly aware of the potential impact of failing to address the so-called cliff, which some experts warned could plunge the still-fragile economy into a new recession.

Vice President Joe Biden, who took the lead for Democrats in negotiating the deal over the weekend with Republican Senate Minority Leader Mitch McConnell, was scheduled to join House Democrats at a behind-closed-doors meeting at 12:15 p.m. Biden paid a similar call on Senate Democrats late Monday.

House Republicans were also slated to huddle behind the scenes to discuss what to do about the Senate-passed measure. The anti-tax Club for Growth warned lawmakers to oppose the compromise because “this bill raises taxes immediately with the promise of cutting spending later.”

Under the compromise arrangement approved by the Senate, taxes would rise on income above $400,000 for  individuals and $450,000 for households, while exemptions and deductions the wealthiest Americans use to reduce their tax bill would face new limits. The accord would also raise the taxes paid on large inheritances from 35% to 40% for estates over $5 million. And it would extend by one year unemployment benefits for some two million Americans. It would also prevent cuts in payments to doctors who treat Medicare patients and spare tens of millions of Americans who otherwise would have been hit with the Alternative Minimum Tax.

The middle class will still see its taxes go up: The final deal did not include an extension of the payroll tax holiday. And the overall package will deepen the deficit by an estimated $3.9 trillion dollars by extending the overwhelming majority of the Bush tax cuts. Many Democrats had opposed those measures in 2001 and 2003. Obama agreed to extend them in 2010.

Efforts to modify the first installment of $1.2 trillion in cuts to domestic and defense programs over 10 years -- the other portion of the “fiscal cliff,” known as sequestration -- had proved a sticking point late in the game. Democrats had sought a year-long freeze but ultimately caved to Republican pressure and signed on to just a two-month delay while broader deficit-reduction talks continue.

That would put the next major battle over spending cuts right around the time that the White House and its Republican foes are battling it out over whether to raise the country's debt limit. Republicans have vowed to push for more spending cuts, equivalent to the amount of new borrowing.

Obama has vowed not to negotiate as he did in 2011, when a bruising fight threatened the first-ever default on America's obligations and resulted in the first-ever downgrade of the country's credit rating. Biden sent that message to Democrats in Congress, two senators said.

“This agreement is the right thing to do for our country and the House should pass it without delay,” President Barack Obama said in a written statement shortly after the Senate vote.

There were signs that the 2016 presidential race shaped the outcome in the Senate. Republican Senator Marco Rubio, widely thought to have his eye on his party’s nomination, voted no. Republican Senator Rand Paul, who could take up the libertarian mantle of his father Ron Paul, did as well. Observers were watching to see how Republican Rep. Paul Ryan, the Budget Committee chairman and his party's failed vice presidential nominee in 2012, would vote Tuesday.

In remarks just before the Senate adopted the compromise, McConnell repeatedly called the agreement “imperfect” but said it beat allowing income tax rates rise across the board.

“I know I can speak for my entire conference when I say we don’t think taxes should be going up on anyone, but we all knew that if we did nothing they’d be going up on everyone today,” he said. “We weren’t going to let that happen.”

“Our most important priority was to protect middle-class families. This legislation does that,” Democratic Senate Majority Leader Harry Reid said. But Reid cautioned that “passing this agreement does not mean negotiations halt. Far from it.”

The House’s Republican leaders, including Speaker John Boehner, hinted in an unusual joint statement that they might amend anything that clears the Senate – a step that could kill the deal.

“Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members -- and the American people -- have been able to review the legislation,” they said.

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Obama: Deal to avert fiscal cliff 'in sight'

WASHINGTON (AP) — Working with Congress against a midnight deadline, President Barack Obama said Monday that a deal to avert the "fiscal cliff" was in sight but not yet finalized. The emerging deal would raise tax rates on family income over $450,000 and individual income over $400,000 a year, increase the estate tax rate and extend unemployment benefits for one year.

"There are still issues left to resolve but we're hopeful Congress can get it done," Obama said at a campaign-style event at the White House. "But it's not done."

In the building New Year's Eve drama, the parties still were at an impasse over whether to put off the automatic, across-the-board spending cuts set to take effect at the beginning of the year and if so, how to pay for that.

One official said talks were focused on a two-month delay in the across-the-board cuts but negotiators had yet to agree on about $24 billion in savings from elsewhere in the budget. Democrats had asked for the cuts to be put off for one year and be offset by unspecified revenue.

The president said that whatever last-minute fixes are necessary, they must come from a blend of tax revenue and constrained spending, not just budget cuts.

And a little more than an hour after Obama spoke, Senate Republican leader Mitch McConnell said it was time to decouple the two major issues.

"We'll continue to work on smarter ways to cut spending, but let's not let that hold up protecting Americans from a tax hike that will take place in about ten hours," he said.

Officials emphasized that negotiations were continuing and the emerging deal was not yet final. And a confident Obama, flanked by cheering middle class Americans in a White House auditorium, jabbed Congress, saying lawmakers were prone to last-minute delays.

"One thing we can count on with respect to this Congress is that if there's even one second left before you have to do what you're supposed to do, they will use that last second," he said.

Speaking shortly afterward on the Senate floor, Sen. John McCain said that "at a time of crisis, on New Year's Eve...you had the president of the United States go over and have a cheerleading, ridiculing-of-Republicans exercise." The Arizona Republican lost the 2008 presidential race to Obama.

Unless an agreement is reached and approved by Congress at the start of the New Year, more than $500 billion in 2013 tax increases will take effect immediately and $109 billion in cuts will be carved from defense and domestic programs

Though the tax hikes and budget cuts would be felt gradually, economists warn that if allowed to fully take hold, their combined impact — the so-called fiscal cliff — would rekindle a recession.

The current proposal in the works would raise the tax rates on family income over $450,000 and individual income over $400,000 from 35 percent to 39.6 percent, the same level as under former President Bill Clinton. Also, estates would be taxed at 40 percent after the first $5 million for an individual and $10 million for a couple, up from 35 percent to 40 percent.

Unemployment benefits would be extended for one year. Without the extension, 2 million people would lose benefits beginning in early January.

A Republican official familiar with the plans confirmed the details described to The Associated Press.

The officials requested anonymity in order to discuss the internal negotiations.

The president said his hopes for a larger, more sweeping deal have been dashed and said that such an accommodation was not possible "with this Congress at this time."

But even with this fight not finished, Obama warned Republicans, specifically, about the battles still ahead. He said he would not accept any debt-reduction deals in the new year that rely on slashing spending without raising taxes, too. Cuts alone won't happen anymore "at least as long as I'm president, and I'm going to be president for the next four years."

Urgent talks were continuing Monday afternoon between the White House and congressional Republicans, with longtime negotiating partners Vice President Joe Biden and Senate Republican leader Mitch McConnell at the helm. Underscoring the flurry of activity, another GOP aide said the two men had conversations at 12:45 a.m. and 6:30 a.m. Monday.

An agreement on the proposed deal would also shield Medicare doctors from a 27 percent cut in fees and extend tax credits for research and development, as well as renewable energy.

The deal would also extend for five years a series of tax credits meant to lessen the financial burden on poorer and middle-class families, including one credit that helps people pay for college.

The deal would achieve about $600 billion in new revenue, the officials said.

Despite the progress in negotiations, Senate Majority Leader Harry Reid warned that time was running out to finalize the deal.

"Americans are still threatened with a tax hike in just a few hours," said Reid, D-Nev., as the Senate began an unusual New Year's Eve session.

Liberal Sen. Tom Harkin, D-Iowa, took to the Senate floor after Reid to warn Democratic bargainers against lowering levies on large inherited estates and raising the income threshold at which higher tax rates would kick in.

"No deal is better than a bad deal. And this look like a very bad deal the way this is shaping up," said Harkin.

Letting tax rates rise for couples with incomes of $450,000 a year is a concessions for Obama, who campaigned for re-election on a pledge to set the levels at $200,000 for individuals and $250,000 for couples. It also marked a significant concession by Republican leaders who pledged to continue the George W. Bush-era tax cuts for all income earners. .

The hope of the White House and lawmakers was to seal an agreement, enact it and send it to Obama for his signature before taxpayers felt the impact of higher income taxes or federal agencies began issuing furloughs or taking other steps required by spending cuts.

Regardless of the fate of the negotiations, it appeared all workers would experience a cut in their take-home pay with the expiration of a two-year cut in payroll taxes.

In a move that was sure to irritate Republicans, Reid was planning — absent a deal — to force a Senate vote Monday on Obama's campaign-season proposal to continue expiring tax cuts for all but those with income exceeding $200,000 for individuals and $250,000 for couples.

As the New Year's Eve deadline rapidly approached, Democrats and Republicans found themselves at odds over a host of issues, including taxing large inherited estates. Republicans wanted the tax left at its current 35 percent, with the first $5.1 million excluded, while Democrats wanted the rate increased to 45 percent with a smaller exclusion.

The two sides were also apart on how to keep the alternative minimum tax from raising the tax bills of nearly 30 million middle-income families and how to extend tax breaks for research by business and other activities.

Republicans were insisting that budget cuts be found to pay for some of the spending proposals Democrats were pushing.

These included proposals to erase scheduled defense and domestic cuts exceeding $200 billion over the next two years and to extend unemployment benefits. Republicans complained that in effect, Democrats would pay for that spending with the tax boosts on the wealthy.

"We can't use tax increases on anyone to pay for more spending," said Sen. Kay Bailey Hutchison, R-Texas.

_____

Eds: Associated Press writers David Espo, Andrew Taylor, Alan Fram and Josh Lederman contributed to this report.

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Obama: Deal to avert fiscal cliff 'in sight'

WASHINGTON (AP) — Working with Congress against a midnight deadline, President Barack Obama said Monday that a deal to avert the "fiscal cliff" was in sight but not yet finalized. The emerging deal would raise tax rates on family income over $450,000 and individual income over $400,000 a year, increase the estate tax rate and extend unemployment benefits for one year.

"There are still issues left to resolve but we're hopeful Congress can get it done," Obama said at a campaign-style event at the White House. "But it's not done."

In the building New Year's Eve drama, the parties still were at an impasse over whether to put off the automatic, across-the-board spending cuts set to take effect at the beginning of the year and if so, how to pay for that.

One official said talks were focused on a two-month delay in the across-the-board cuts but negotiators had yet to agree on about $24 billion in savings from elsewhere in the budget. Democrats had asked for the cuts to be put off for one year and be offset by unspecified revenue.

The president said that whatever last-minute fixes are necessary, they must come from a blend of tax revenue and constrained spending, not just budget cuts.

Officials emphasized that negotiations were continuing and the emerging deal was not yet final. And a confident Obama, flanked by cheering middle class Americans in a White House auditorium, jabbed Congress, saying lawmakers were prone to last-minute delays.

"One thing we can count on with respect to this Congress is that if there's even one second left before you have to do what you're supposed to do, they will use that last second," he said.

Speaking shortly afterward on the Senate floor, Sen. John McCain said that "at a time of crisis, on New Year's Eve...you had the president of the United States go over and have a cheerleading, ridiculing-of-Republicans exercise." The Arizona Republican lost the 2008 presidential race to Obama.

Unless an agreement is reached and approved by Congress at the start of the New Year, more than $500 billion in 2013 tax increases will take effect immediately and $109 billion in cuts will be carved from defense and domestic programs

Though the tax hikes and budget cuts would be felt gradually, economists warn that if allowed to fully take hold, their combined impact — the so-called fiscal cliff — would rekindle a recession.

The current proposal in the works would raise the tax rates on family income over $450,000 and individual income over $400,000 from 35 percent to 39.6 percent, the same level as under former President Bill Clinton. Also, estates would be taxed at 40 percent after the first $5 million for an individual and $10 million for a couple, up from 35 percent to 40 percent.

Unemployment benefits would be extended for one year. Without the extension, 2 million people would lose benefits beginning in early January.

A Republican official familiar with the plans confirmed the details described to The Associated Press.

The officials requested anonymity in order to discuss the internal negotiations.

The president said his hopes for a larger, more sweeping deal have been dashed and said that such an accommodation was not possible "with this Congress at this time."

But even with this fight not finished, Obama warned Republicans, specifically, about the battles still ahead. He said he would not accept any debt-reduction deals in the new year that rely on slashing spending without raising taxes, too. Cuts alone won't happen anymore "at least as long as I'm president, and I'm going to be president for the next four years."

Urgent talks were continuing Monday afternoon between the White House and congressional Republicans, with longtime negotiating partners Vice President Joe Biden and Senate Republican leader Mitch McConnell at the helm. Underscoring the flurry of activity, another GOP aide said the two men had conversations at 12:45 a.m. and 6:30 a.m. Monday.

An agreement on the proposed deal would also shield Medicare doctors from a 27 percent cut in fees and extend tax credits for research and development, as well as renewable energy.

The deal would also extend for five years a series of tax credits meant to lessen the financial burden on poorer and middle-class families, including one credit that helps people pay for college.

The deal would achieve about $600 billion in new revenue, the officials said.

Despite the progress in negotiations, Senate Majority Leader Harry Reid warned that time was running out to finalize the deal.

"Americans are still threatened with a tax hike in just a few hours," said Reid, D-Nev., as the Senate began an unusual New Year's Eve session.

Liberal Sen. Tom Harkin, D-Iowa, took to the Senate floor after Reid to warn Democratic bargainers against lowering levies on large inherited estates and raising the income threshold at which higher tax rates would kick in.

"No deal is better than a bad deal. And this look like a very bad deal the way this is shaping up," said Harkin.

Letting tax rates rise for couples with incomes of $450,000 a year is a concessions for Obama, who campaigned for re-election on a pledge to set the levels at $200,000 for individuals and $250,000 for couples. It also marked a significant concession by Republican leaders who pledged to continue the George W. Bush-era tax cuts for all income earners. .

The hope of the White House and lawmakers was to seal an agreement, enact it and send it to Obama for his signature before taxpayers felt the impact of higher income taxes or federal agencies began issuing furloughs or taking other steps required by spending cuts.

Regardless of the fate of the negotiations, it appeared all workers would experience a cut in their take-home pay with the expiration of a two-year cut in payroll taxes.

In a move that was sure to irritate Republicans, Reid was planning — absent a deal — to force a Senate vote Monday on Obama's campaign-season proposal to continue expiring tax cuts for all but those with income exceeding $200,000 for individuals and $250,000 for couples.

As the New Year's Eve deadline rapidly approached, Democrats and Republicans found themselves at odds over a host of issues, including taxing large inherited estates. Republicans wanted the tax left at its current 35 percent, with the first $5.1 million excluded, while Democrats wanted the rate increased to 45 percent with a smaller exclusion.

The two sides were also apart on how to keep the alternative minimum tax from raising the tax bills of nearly 30 million middle-income families and how to extend tax breaks for research by business and other activities.

Republicans were insisting that budget cuts be found to pay for some of the spending proposals Democrats were pushing.

These included proposals to erase scheduled defense and domestic cuts exceeding $200 billion over the next two years and to extend unemployment benefits. Republicans complained that in effect, Democrats would pay for that spending with the tax boosts on the wealthy.

"We can't use tax increases on anyone to pay for more spending," said Sen. Kay Bailey Hutchison, R-Texas.

_____

Eds: Associated Press writers David Espo, Andrew Taylor, Alan Fram and Josh Lederman contributed to this report.

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Top Republican Senator urges Biden to break ‘fiscal cliff’ impasse

Senate Minority Leader Mitch McConnell (R-KY) is shown in this C-Span video footage as he addresses the Senate …Republican Senate Minority Leader Mitch McConnell urged Vice President Joe Biden to jump into “fiscal cliff” talks in hopes of breaking an impasse that threatens Americans with sharply higher income taxes come January 1.

In a brief speech on the Senate floor, McConnell complained that Democrats had not yet placed a counter-offer to his latest proposal, delivered at 7 pm on Saturday, “despite the obvious time crunch.”

“I’m concerned about the lack of urgency here,” the Kentucky lawmaker said. “I think we all know we’re running out of time.”

There is “far too much at stake for political gamesmanship. We need to protect the American families, and businesses, from this looming tax hike,” McConnell said. “In order to get things moving, I have just spoken with the majority leader, I also placed a call to the vice president to see if he could help jump-start the negotiations on his side.”

“The vice president and I have worked together on solutions before, and I believe we can again,” McConnell declared.

Absent a breakthrough, income tax rates will rise across the board while government spending on domestic and defense programs will be slashed – a combination that some experts warn could plunge the economy into a new recession. Obama has pressed for extending Bush-era tax rates on income up to $250,000 but letting them expire above that threshold. The two sides have also been at odds on issues like the estate tax and whether to extend unemployment benefits that stand to expire for some two million Americans.

“We’re willing to work with whoever, whoever can help,” McConnell said. “There’s no single issue that remains an impossible sticking point. The sticking point appears to be a willingness, an interest, or frankly the courage to close the deal.”

“I’m willing to get this done, but I need a dance partner,” he said.

Democratic Senate Majority Leader Harry Reid said he had spoken several times on Sunday with President Barack Obama but acknowledged that his side had been “unable” to present a counter-offer to the latest Republican proposal.

“He and the vice president, I wish them well. In the meantime I will continue to try to come up something but at this stage I don’t have a counter-offer to make,” Reid said. “We are apart on some pretty big issues.”

Reid noted that Democratic and Republican senators were to huddle separately to discuss a possible way forward and said he remained “hopeful but realistic” about the prospects for a breakthrough.

But he also seemed to confirm that one key sticking point was a Republican demand for reducing Social Security payments but adopting a less generous cost-of-living calculation known as “chained CPI” (the CPI being “consumer price index,” a measure of inflation).

“We’re not going to have any Social Security cuts,” Reid declared, saying it would not be “appropriate” in a short-term deal. Democratic leaders have cautiously signaled support for that approach – but only as part of a larger-scale deal that would see the U.S. debt limit raised for a significant stretch of time. Republicans want to use the debt ceiling fight to wrangle deeper government spending cuts.

“We're willing to make difficult concessions as part of a balanced, comprehensive agreement,” Reid said, “but we'll not agree to cut Social Security benefits as part of a small or short-term agreement, especially if that agreement gives more handouts to the rich.”

“At some point in the negotiating process, it becomes obvious when the other side is intentionally demanding concessions they know the other side's not willing to make. We are not there,” the Nevada lawmaker said, but that point is “real close.”

Republican House Speaker John Boehner has said that it's up to the Senate to craft a compromise that can clear both chambers of Congress. Boehner suffered an embarrassing setback 10 days ago when conservative opposition forced him to withdraw legislation that would have let taxes rise on income of above $1 million. But a senior Republican aide noted that the exercise allowed the speaker to gauge how many of his rank-and-file would accept any increase in tax rates.

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Obama boasts support of American people in ‘fiscal cliff’ fight

As Congress races to pass legislation before the Jan. 1 "fiscal cliff" deadline, President Barack Obama in an interview which aired Sunday publicly touted the support of the American people for the plan he offered to Republicans.

"We have put forward not only a sensible deal, but one that has the support of the majority of the American people including close to half of Republicans," the president told NBC "Meet the Press" host David Gregory in a taped interview.

The president said the American people support raising taxes on the wealthiest earners-- something the Republicans have staunchly opposed as a means to generate revenue and reduce the nation's deficit.

"At a certain point, if folks can’t say 'yes' to good offers, than I also have an obligation to the American people to make sure that the entire burden of deficit reduction doesn't fall on seniors who are relying on Medicare... families who rely on Medicaid to take care of a disabled child" and middle class families, he said. "There is a basic fairness that is at stake in this whole thing."

Obama held firm to his demands Sunday, blaming congressional Republicans for the failure to reach a deal to avoid the automatic spending cuts and tax increases set to go into effect Jan. 1.

The president conceded that markets will be adversely affected if America "goes over" the fiscal cliff, as Gregory phrased it.

"Businesses and investors are going to feel more negative about the economy," the president said, adding that employment will also "tick down."  "But what’s been holding us back has been the dysfunction here in Washington."

Obama took no responsibility for that dysfunction in the interview, and repeated his argument that Republican leaders have difficulty "saying yes" to the president and are rejecting the desires of the American public.

Republicans say their "biggest priority" is the nation's debt, the president said, "but the way they’re behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected."

The president announced Friday that he had tasked Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell this weekend with producing a deal to avoid the fiscal cliff before the Jan. 1 deadline.

The president remained optimistic that in the short term, congressional leaders can pass legislation to prevent tax increases on the middle class ahead of the Jan. 1 deadline. "That's something we all can agree on," he said.

Passing legislation to protect middle class tax rates will "take a big bite out of the fiscal cliff," the president said, leaving Congress to deal with the remainder of deficit reduction, spending and tax issues in the future.

Pivoting to his future final term in office, the president reconfirmed his commitment to gun control and other legislative action to prevent shooting tragedies such as the Sandy Hook Elementary School shooting in Newtown, Conn.

"I’d like to get it done in the first year," he said.

When asked, Obama expressed doubt about the National Rifle Association's proposal to place armed security in every school in America to protect students and teachers.

"I’m not going to pre-judge recommendations given to me," Obama said. "But I'm skeptical that the only answer is putting more guns in schools."

The president also conceded that the circumstances surrounding the Sept. 11, 2012 attack on the U.S. consulate in Benghazi, Libya weren't ideal.

“There was just some sloppiness" in how we secure some embassies, he said and pledged to follow recommendations offered by the review board.

"We're not going to pretend that this was not a problem. This was a huge problem. And we're going to implement every single recommendation that's been put forward," he said.

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Make-or-break moment for fiscal cliff talks

WASHINGTON (AP) — President Barack Obama was presenting a limited fiscal proposal to congressional leaders at a White House meeting Friday, a make-or-break moment for negotiations to avoid across-the-board tax increases and deep spending cuts at the first of the year.

Lawmakers and White House officials held out slim hope for a deal before the new year, but it remained unclear whether congressional passage of legislation palatable to both sides was even possible.

House Speaker John Boehner, Senate Democratic Leader Harry Reid, Senate Republican Leader Mitch McConnell and House Democratic Leader Nancy Pelosi arrived at the White House separately, each driven in dark SUVs for the afternoon session. Vice President Joe Biden and Treasury Secretary Timothy Geithner also were attending.

The meeting — the first among congressional leaders and the president since Nov. 16 — started at 3:10 p.m. and was likely to center on which income thresholds would face higher tax rates, extending unemployment insurance and preventing a cut in Medicare payments to doctors, among other issues.

For Obama, the eleventh-hour scramble represented a test of how he would balance strength derived from his re-election against an avowed commitment to compromise in the face of divided government. Despite early talk of a grand bargain between Obama and Boehner that would reduce deficits by more than $2 trillion, the expectations were now far less ambitious.

Although there were no guarantees of a deal, Republicans and Democrats said privately that any agreement would likely include an extension of middle-class tax cuts with increased rates at upper incomes, an Obama priority that was central to his re-election campaign.

A key question was whether Obama would agree to abandon his insistence during the campaign on raising taxes on households earning more than $250,000 a year and instead accept a $400,000 threshold like the one he offered in negotiations with Boehner. Another was whether Republicans would seek a higher income threshold.

The deal would also likely put off the scheduled spending cuts. Such a year-end bill could also include an extension of expiring unemployment benefits, a reprieve for doctors who face a cut in Medicare payments and possibly a short-term measure to prevent dairy prices from soaring, officials said.

If a deal was not possible, it would become evident at Friday's White House meeting, and Obama and the leaders would leave a resolution for the next Congress to address in January.

Such a delay could unnerve the stock market, which edged lower for a fifth day Friday amid worries that lawmakers would fail to reach a budget deal. Economists say that if the tax increases are allowed to hit most Americans and if the spending cuts aren't scaled back, the recovering but fragile economy could sustain a traumatizing shock.

Obama and Reid, D-Nev., would have to propose a package that McConnell, as the Senate's Republican leader, would agree not to block with procedural steps that require 60 votes to overcome. The package would have to be one that Boehner determines could then win substantial Republican support in the GOP-controlled House.

The No. 2 Senate GOP leader, Jon Kyl of Arizona, said it is "pretty unlikely" that Senate Republicans would agree to legislation averting the fiscal cliff if it wouldn't pass muster in the House.

"If you know the House isn't going to do something, why go through the charade?" he told reporters. "That becomes political gamesmanship."

Sen. Chuck Schumer of New York said he still thinks a deal could be struck.

The Democrat told NBC's "Today" show Friday that he believes the "odds are better than people think."

Schumer said he based his optimism on indications that McConnell has gotten "actively engaged" in the talks.

Appearing on the same show, Republican Sen. John Thune noted the meeting scheduled later Friday at the White House, saying "it's encouraging that people are talking."

But Sen. Bob Corker, R-Tenn., predicted that "the worst-case scenario" could emerge from Friday's talks.

"We will kick the can down the road," he said on "CBS This Morning."

"We'll do some small deal and we'll create another fiscal cliff to deal with the fiscal cliff," he said. Corker complained that there has been "a total lack of courage, lack of leadership," in Washington.

If a deal were to pass the Senate, Boehner would have to agree to take it to the floor in the Republican-controlled House.

Boehner discussed the fiscal cliff with Republican members in a conference call Thursday and advised them that the House would convene Sunday evening. Rep. Tom Cole, R-Okla., an ally of the speaker, said Boehner told the lawmakers that "he didn't really intend to put on the floor something that would pass with all the Democratic votes and few of the Republican votes."

But Cole did not rule out Republican support for some increase in tax rates, noting that Boehner had amassed about 200 Republican votes for a plan last week to raise rates on Americans earning $1 million or more. Boehner ultimately did not put the plan to a House floor vote in the face of opposition from Republican conservatives and a unified Democratic caucus.

"The ultimate question is whether the Republican leaders in the House and Senate are going to push us over the cliff by blocking plans to extend tax cuts for the middle class," White House communications director Dan Pfeiffer said. "Ironically, in order to protect tax breaks for millionaires, they will be responsible for the largest tax increase in history."

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Associated Press writers Alan Fram, Charles Babington and David Espo contributed to this report.

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Follow Jim Kuhnhenn on Twitter: http://twitter.com/jkuhnhenn

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Make-or-break moment for fiscal cliff talks

WASHINGTON (AP) — President Barack Obama was preparing to present a limited fiscal proposal to congressional leaders at a White House meeting Friday, a make-or-break moment for negotiations to avoid across-the-board tax increases and deep spending cuts at the first of the year.

Lawmakers and White House officials held out a slim hope for a deal before the new year, but it remained unclear whether congressional passage of legislation palatable to both sides was even possible.

The Friday afternoon meeting among congressional leaders and the president — their first since Nov. 16 — was likely to center on which income thresholds would face higher tax rates, extending unemployment insurance, and preventing a cut in Medicare payments to doctors, among other issues.

For Obama, the eleventh-hour scramble represented a test of how he would balance strength derived from his re-election against an avowed commitment to compromise in the face of divided government. Despite early talk of a grand bargain between Obama and House Speaker John Boehner that would reduce deficits by more than $2 trillion, the expectations were now far less ambitious.

Although there were no guarantees of a deal, Republicans and Democrats said privately that any agreement would likely include an extension of middle-class tax cuts with increased rates at upper incomes, an Obama priority that was central to his re-election campaign.

A key question was whether Obama would agree to abandon his insistence during the campaign on raising taxes on households earning more than $250,000 a year and instead accept a $400,000 threshold like the one he offered in negotiations with Boehner. Another was whether Republicans would seek a higher income threshold.

The deal would also likely put off the scheduled spending cuts. Such a year-end bill could also include an extension of expiring unemployment benefits, a reprieve for doctors who face a cut in Medicare payments and possibly a short-term measure to prevent dairy prices from soaring, officials said.

If a deal was not possible, it would become evident at Friday's White House meeting, and Obama and the leaders would leave a resolution for the next Congress to address in January.

Such a delay could unnerve the stock market, which edged lower for a fifth day Friday amid worries that lawmakers would fail to reach a budget deal. Economists say that if the tax increases are allowed to hit most Americans and if the spending cuts aren't scaled back, the recovering but fragile economy could sustain a traumatizing shock.

Obama called for the meeting as top lawmakers on Thursday alternately cast blame on each other while portraying themselves as open to a reasonable last-minute bargain.

Senate Democratic Leader Harry Reid all but conceded that any effort at this late date was a long shot. "I don't know timewise how it can happen now," he said.

The No. 2 Senate GOP leader, Jon Kyl of Arizona, said it is "pretty unlikely" that Senate Republicans would agree to legislation averting the fiscal cliff if it wouldn't pass muster in the House.

"If you know the House isn't going to do something, why go through the charade?" he told reporters. "That becomes political gamesmanship."

Obama and Reid, D-Nev., would have to propose a package that Senate Republican Leader Mitch McConnell would agree not to block with procedural steps that require 60 votes to overcome.

Sen. Chuck Schumer of New York said he still thinks a deal could be struck.

The Democrat told NBC's "Today" show Friday that he believes the "odds are better than people think."

Schumer said he based his optimism on indications that McConnell has gotten "actively engaged" in the talks.

Appearing on the same show, Republican Sen. John Thune noted the meeting scheduled later Friday at the White House, saying "it's encouraging that people are talking."

But Sen. Bob Corker, R-Tenn., predicted that "the worst-case scenario" could emerge from Friday's talks.

"We will kick the can down the road," he said on "CBS This Morning."

"We'll do some small deal and we'll create another fiscal cliff to deal with the fiscal cliff," he said. Corker complained that there has been "a total lack of courage, lack of leadership," in Washington.

If a deal were to pass the Senate, Boehner would have to agree to take it to the floor in the Republican-controlled House.

Boehner discussed the fiscal cliff with Republican members in a conference call Thursday and advised them that the House would convene Sunday evening. Rep. Tom Cole, R-Okla., an ally of the speaker, said Boehner told the lawmakers that "he didn't really intend to put on the floor something that would pass with all the Democratic votes and few of the Republican votes."

But Cole did not rule out Republican support for some increase in tax rates, noting that Boehner had amassed about 200 Republican votes for a plan last week to raise rates on Americans earning $1 million or more. Boehner ultimately did not put the plan to a House floor vote in the face of opposition from Republican conservatives and a unified Democratic caucus.

"The ultimate question is whether the Republican leaders in the House and Senate are going to push us over the cliff by blocking plans to extend tax cuts for the middle class," White House communications director Dan Pfeiffer said. "Ironically, in order to protect tax breaks for millionaires, they will be responsible for the largest tax increase in history."

Boehner, McConnell, Reid and House Democratic Leader Nancy Pelosi are all scheduled to attend Friday's White House meeting with Obama. Vice President Joe Biden will also participate in the meeting, the White House said.

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Associated Press writers Alan Fram, Charles Babington and David Espo contributed to this report.

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Follow Jim Kuhnhenn on Twitter: http://twitter.com/jkuhnhenn

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Reid: U.S. is poised to go off fiscal cliff

Senate Majority Leader Harry Reid (R) (D-NV) hugs Speaker of the House John Boehner as Senate Minority Leader Mitch …With a deal to avert the so-called "fiscal cliff" nowhere in sight, Senate Majority Leader Harry Reid on Thursday predicted a compromise would not be reached in time to avert the tax increases and automatic spending cuts set to be triggered on January 1. Reid also criticized Republican House Speaker John Boehner in unusually personal terms, accusing him of running the House as a “dictatorship” and blasting him for letting lawmakers out for vacation.

Boehner will be to blame “if we go over the cliff, and it looks like that’s where we’re headed,” Reid insisted as the Senate returned to work for a post-Christmas session focused on disaster relief for Sandy victims and renewing key government surveillance powers.

Reid's speech on the Senate floor came shortly before President Barack Obama returned to Washington from Hawaii to resume discussions of how to avoid the fiscal cliff. White House Spokesman Dan Pfeiffer said Obama had spoken to Reid, Boehner, House Democratic Leader Nancy Pelosi and Senate Republican Leader Mitch McConnell Wednesday evening.

Reid, a Nevada Democrat, repeatedly pressed Boehner to have the House take up a Senate-passed bill extending income tax cuts on income under $250,000, calling that measure the only “viable escape route.” House Republicans have thus far balked at raising taxes at all.

“The Speaker just has a few days left to change his mind,” Reid said. “But I have to be very honest…I don’t know, time-wise, how it can happen now.”

"Speaker Boehner should call members of the House back today," Reid said, adding that the Ohio Republican "seems to care more about keeping his speakership" than pushing his party to accept a deal that would avert a tax increase for all but the highest income taxpayers. Democrats have repeatedly leveled that charge at Boehner, whose reelection on January 3 is not seriously in doubt despite ever-louder conservative grumbling.

Reid also accused Boehner of operating a "dictatorship" that had shut out House Democrats and all but the most conservative voices in the GOP, saying that the Senate-passed bill would pass with mostly Democratic votes but some Republican support as well.

“Nothing can move forward in regards to our budget crisis unless Speaker Boehner and Leader McConnell are willing to participate in coming up with a bipartisan plan,” Reid warned. “Speaker Boehner is unwilling to negotiate, we’ve not heard a word from Leader McConnell, nothing is happening. Democrats can’t put together a plan on their own,” he said.

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Reid: U.S. is poised to go off fiscal cliff

Senate Majority Leader Harry Reid (R) (D-NV) hugs Speaker of the House John Boehner as Senate Minority Leader Mitch …With a deal to avert the so-called "fiscal cliff" nowhere in sight, Senate Majority Leader Harry Reid on Thursday predicted a compromise would not be reached in time to avert the tax increases and automatic spending cuts set to be triggered on January 1. Reid also criticized Republican House Speaker John Boehner in unusually personal terms, accusing him of running the House as a “dictatorship” and blasting him for letting lawmakers out for vacation.

Boehner will be to blame “if we go over the cliff, and it looks like that’s where we’re headed,” Reid insisted as the Senate returned to work for a post-Christmas session focused on disaster relief for Sandy victims and renewing key government surveillance powers.

Reid's speech on the Senate floor came shortly before President Barack Obama returned to Washington from Hawaii to resume discussions of how to avoid the fiscal cliff. White House Spokesman Dan Pfeiffer said Obama had spoken to Reid, Boehner, House Democratic Leader Nancy Pelosi and Senate Republican Leader Mitch McConnell Wednesday evening.

Reid, a Nevada Democrat, repeatedly pressed Boehner to have the House take up a Senate-passed bill extending income tax cuts on income under $250,000, calling that measure the only “viable escape route.” House Republicans have thus far balked at raising taxes at all.

“The Speaker just has a few days left to change his mind,” Reid said. “But I have to be very honest…I don’t know, time-wise, how it can happen now.”

"Speaker Boehner should call members of the House back today," Reid said, adding that the Ohio Republican "seems to care more about keeping his speakership" than pushing his party to accept a deal that would avert a tax increase for all but the highest income taxpayers. Democrats have repeatedly leveled that charge at Boehner, whose reelection on January 3 is not seriously in doubt despite ever-louder conservative grumbling.

Reid also accused Boehner of operating a "dictatorship" that had shut out House Democrats and all but the most conservative voices in the GOP, saying that the Senate-passed bill would pass with mostly Democratic votes but some Republican support as well.

“Nothing can move forward in regards to our budget crisis unless Speaker Boehner and Leader McConnell are willing to participate in coming up with a bipartisan plan,” Reid warned. “Speaker Boehner is unwilling to negotiate, we’ve not heard a word from Leader McConnell, nothing is happening. Democrats can’t put together a plan on their own,” he said.

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Powerful winter storm throttles Midwest travelers

CINCINNATI (AP) — A powerful winter storm system pounded the nation's midsection Wednesday and headed toward the Northeast, where people braced for the high winds and heavy snow that disrupted holiday travel, knocked out power to thousands of homes and were blamed in at least six deaths.

Hundreds of flights were canceled or delayed, scores of motorists got stuck on icy roads or slid off into drifts, and blizzard warnings were issued across Indiana and Ohio amid snowy gusts of 30 mph that blanketed roads and windshields, at times causing whiteout conditions.

"The way I've been describing it is as a low-end blizzard, but that's sort of like saying a small Tyrannosaurus rex," said John Kwiatkowski, a meteorologist with the National Weather Service in Indianapolis. He said the storm's winds were just high enough to classify the storm as a blizzard, making it one of the strongest snowstorms in years to strike central and southern Indiana.

"It's ugly out," said Elizabeth Brinker, 26, in downtown Indianapolis as she hurried to her car after the law firm where she works sent employees home Wednesday morning.

Some 40 vehicles got bogged down trying to make it up a slick hill in central Indiana, and four state snowplows slid off slick roads near Vincennes as snow fell at the rate of 3 inches within an hour in some spots.

Two passengers in a car on a sleet-slickened Arkansas highway were killed Wednesday in a head-on collision, and two people, including a 76-year-old Milwaukee woman, were killed Tuesday on Oklahoma highways. Deaths from wind-toppled trees were reported in Texas and Louisiana. The system that spawned nearly three dozen tornadoes across Gulf Coast states on Tuesday was headed to New England and the Eastern Seaboard.

National Guardsmen were called out to help cope with the storm in Indiana and Arkansas.

In Arkansas, Humvees transported medical workers and patients in areas with 10 inches of snow. Gov. Mike Beebe sent out National Guard teams after the storm left 192,000 customers without power Wednesday morning. The largest utility, Entergy Arkansas, said some people could be without power for as long as a week because of snapped poles and wires after ice coated power lines ahead of 10 inches of snowfall.

Other states to the east also had widely scattered outages and treacherous roads.

Traffic crawled at 25 mph on Interstate 81 in Maryland, where authorities reported scores of accidents.

"We're going to go down south and get below it (the storm)," said a determined Richard Power, traveling from home in Levittown, N.Y., to Louisville, Ky., in a minivan with his wife, two children and their beagle, Lucky. He said they were well on their way until they hit snow near Harrisburg, Pa., then 15 mph traffic on Interstate 81 at Hagerstown, Md. "We're going to go as far as we can go. .... If it doesn't get better, we're going to just get a hotel."

About two dozen counties in Indiana and Ohio issued snow emergency travel alerts, urging people to go out on the roads only if necessary.

"People need not to travel," said Rachel Trevino, a meteorologist at the National Weather Service bureau in Paducah, Ky. "They need to just go where they're going to be there and stay there."

Jennifer Miller, 58, was taking a bus Wednesday from Cincinnati to visit family in Columbus.

"I wish this had come yesterday and was gone today," she said, struggling with a rolling suitcase and three smaller bags on a slushy sidewalk near the station. "I'm glad I don't have to drive in this."

More than 900 flights were canceled by midday, according to FlightAware.com.

Snow was blamed for scores of vehicle accidents as far east as Maryland. As the storm moved east, New England state highway departments were treating roads and getting ready to mobilize with snowfall forecasts of a foot or more.

"People are picking up salt and a lot of shovels today," said Andy Greenwood, an assistant manager at Aubuchon Hardware in Keene, N.H.

In Manchester, N.H., public works officials said plow trucks were ready, as were a variety of emergency notification systems including blinking strobe lights at major intersections, and email, text and social media alerts.

Early indications were that day-after-Christmas mall traffic was down, too, with people holding off in the storm-affected areas on returning that ugly sweater or other unwanted gifts.

"I can't feel my feet, and the ice is hurting when it hits my face," said Tracy Flint, a Columbus, Ohio, hairstylist who was trudging to work across a shopping center lot where only a handful of cars were parked. "But it could be worse."

Behind the storm, Mississippi's governor declared states of emergency in eight counties with more than 25 people reported injured and 70 homes left damaged.

Cindy Williams, 56, stood near a home in McNeill, Miss., where the front was collapsed into a pile of wood and brick, with a balcony and porch ripped apart. Large Oak trees were uprooted and winds sheared off nearby treetops in a nearby grove. But she was focused on that all the family members from her husband to their grandchildren had escaped harm.

"We are so thankful," she said. "God took care of us."

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Associated Press writers Rick Callahan and Charles Wilson in Indianapolis, Kelly P. Kissel in Little Rock, Ark.; Jim Van Anglen in Mobile, Ala.; Holbrook Mohr in Jackson, Miss.; Julie Carr Smyth and Mitch Stacy in Columbus, Ohio; Amanda Lee Myers in Cincinnati, David Dishneau in Hagerstown, Md., and Holly Ramer in Concord, N.H., contributed to this report.

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Contact Dan Sewell at http://www.twitter.com/dansewell

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As winter storm bears down on Midwest, death toll climbs

MOBILE, Ala. (AP) -- A powerful storm system that erupted Christmas Day with Gulf Coast tornadoes and snow in the nation's midsection headed for the Northeast on Wednesday, spreading blizzard conditions that slowed holiday travel.

The death toll rose to six with car accidents on snow and sleet-slickened highways in Arkansas and Oklahoma.

Post-Christmas travelers braced for flight delays and a raft of weather warnings for drivers, a day after rare winter twisters damaged buildings in Louisiana, Mississippi and Alabama.

Snow blew across southern Illinois and southern Indiana early Wednesday as the storm tracked up the Ohio River valley toward the Eastern seaboard and New England.

There were whiteout conditions in parts of southwestern Indiana, where 6 inches or more of snow had fallen by midmorning around Evansville. State police reported dozens of vehicles stuck after not being able to get up a hill on a central Indiana highway, while some roads around Evansville were impassable with wind gusts around 30 mph.

A blizzard warning was in effect for much of the state's southern two-thirds and more than a dozen counties issued travel watches asking residents to make only essential driving trips.

Indianapolis had 7 inches on the ground by 10 a.m. after receiving as much as 3 inches of snow in a single hour, said John Kwiatkowski, a meteorologist with the National Weather Service in Indianapolis. He said the storm's winds were just high enough to classify the storm as a blizzard, making it one of the strongest snowstorms in years to strike central and southern Indiana.

"The way I've been describing it is as a low-end blizzard, but that's sort of like saying a small Tyrannosaurus rex. Just to become a blizzard is quite an accomplishment. And it's sure a heck of a lot more than we've seen," he said.

In Arkansas, the storm left more than 189,000 customers without electricity Wednesday, utility Entergy Arkansas said.

Severe thunderstorms were forecast for the Carolinas while a line of blizzard and winter storm warnings stretched from Arkansas up the Ohio River to New York and on to Maine.

State police reported scores of accidents on snow-covered highways in central and western Maryland, where forecasters predicted up to 5 inches of snow in most counties west of the Baltimore-Washington area, followed by freezing rain.

Thirty-four tornadoes were reported in Texas, Louisiana, Mississippi and Alabama during the outbreak Tuesday, the National Weather Service said.

Rick Cauley's family was hosting relatives for Christmas when tornado sirens went off in Mobile. Not taking any chances, he and his wife, Ashley, hustled everyone down the block to take shelter at the athletic field house at Mobile's Murphy High School in Mobile.

It turns out, that wasn't the place to head.

"As luck would have it, that's where the tornado hit," Cauley said. "The pressure dropped and the ears started popping and it got crazy for a second." They were all fine, though the school was damaged, as were a church and several homes, but officials say no one was seriously injured.

Camera footage captured the approach of the large funnel cloud.

Mobile was the biggest city hit by numerous twisters. Along with brutal, straight-line winds, the storms knocked down countless trees, blew the roofs off homes and left many Christmas celebrations in the dark. Torrential rains drenched the region and several places saw flash flooding.

More than 900 flights around the U.S. were canceled as of Wednesday midday, according to the flight tracker FlightAware.com. The cancelations were mostly spread around airports that had been or soon would be in the path of the storm.

Holiday travelers in the nation's much colder midsection battled treacherous driving conditions from freezing rain and blizzard conditions from the same fast-moving storms. In Arkansas, highway department officials said the state was fortunate the snowstorm hit on Christmas Day when many travelers were already at their destinations.

Two passengers in a car on a sleet-slickened Arkansas highway died Wednesday when the vehicle crossed the center line and struck an SUV head-on. In Oklahoma, the Highway Patrol said a 76-year-old Wisconsin woman died Tuesday when the car she was riding in was hit head-on by a pickup truck on Interstate 44.

The Oklahoma Highway Patrol had earlier reported that a 28-year-old woman was killed in another crash Tuesday on a snowy highway. The storm's winds were blamed Tuesday for toppling a tree onto a pickup truck in Texas, killing the driver, and another tree onto a house in Louisiana, killing a man there.

Trees fell on homes and across roadways in several communities in southern Mississippi and Louisiana. Mississippi Gov. Phil Bryant declared a state of emergency, saying eight counties reported damages and some injuries.

It included McNeill, where a likely tornado damaged a dozen homes and sent eight people to the hospital, none with life-threatening injuries, said Pearl River County emergency management agency director Danny Manley.

The snowstorm that caused numerous accidents pushed out of Oklahoma late Tuesday, carrying with it blizzard warnings for parts of northeast Arkansas, where 10 inches of snow was forecast. Freezing rain clung to trees and utility lines in Arkansas and winds gusts up to 30 mph whipped them around, causing about 71,000 customers to lose electricity for a time.

Christmas lights also were knocked out with more than 100,000 customers without power for at least a time in Texas, Arkansas, Oklahoma, Mississippi, Louisiana and Alabama.

Blizzard conditions were possible for parts of Illinois, Indiana and Kentucky up to Cleveland with predictions of several inches to a foot of snow. By the end of the week, that snow was expected to move into the Northeast with again up to a foot predicted

Jason Gerth said the Mobile tornado passed by in a few moments and from his porch, he saw about a half-dozen green flashes in the distance as transformers blew. His home was spared.

"It missed us by 100 feet and we have no damage," Gerth said.

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Egypt constitution passes with 63.8 percent

CAIRO (AP) — Egypt's disputed Islamist-backed constitution passed with a 63.8 percent "yes" in a referendum, the election commission announced Tuesday, rejecting opposition allegations of significant vote fraud.

Turnout of 32.9 percent of Egypt's nearly 52 million registered voters was quite a bit lower than most other elections since the uprising nearly two years ago that ousted authoritarian leader Hosni Mubarak.

Mohammed Badie, leader of the Muslim Brotherhood, offered congratulations on the passing of the constitution and said Egyptians continue to "teach" the world.

"Let's all begin to build the renaissance of our country with free will, good intentions and strong determination, men, women, Muslims and Christians," Badie said on his Twitter account. The Brotherhood was the main group that backed the charter.

This is the first constitution since Mubarak's ouster. The opposition had campaigned against it with massive street protests that sometimes turned deadly, arguing that it will usher in Islamic rule in Egypt and restrict freedoms. It has vowed to challenge the referendum results and fight for a share of power in the upcoming parliamentary vote expected within two months.

Judge Samir Abou el-Maati, the head of the electoral commission, denied allegations that judicial supervision was lacking in the vote. He said the total number of people who voted against the constitution was 6.06 million out of 16.7 million valid votes, or about 36.2 percent.

Opposition spokesman Khaled Dawoud said the judge didn't address complaints about overcrowding of polling stations. The opposition says the overcrowding was due to a boycott by some judges who traditionally oversee elections and that was a major factor in the low turnout.

He also said Abou el-Maati did not address violations such as backers of the constitution instructing voters to cast a "yes" ballot within the polling stations.

"We still believe because of the low turnout, this is not the constitution the Egyptians people had aspired for," Dawoud said. "This is not a constitution that will last for a long time."

Dawoud said the National Salvation Front, the main opposition group that brings together liberal, leftists parties and groups, will continue to fight the constitution through preparing for the parliamentary elections. In the parliament, the group will work to amend the constitution, which he said restricts freedoms and undermines social and economic rights of Egyptians.

Abou el-Maati said results were thrown out from polling stations where violations, such as closing early or improper supervision.

He also denied that Christians were preventing from casting their ballots at some stations, a claim widely reported during the two stages of voting on Dec. 15 and Dec. 22.

The official results closely mirror unofficial results announced by the Muslim Brotherhood, which said 64 percent voted "yes."

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Egypt constitution passes with 63.8 percent

CAIRO (AP) — Egypt's disputed Islamist-backed constitution passed with a 63.8 percent "yes" in a referendum, the election commission announced Tuesday, rejecting opposition allegations of significant vote fraud.

Turnout of 32.9 percent of Egypt's nearly 52 million registered voters was quite a bit lower than most other elections since the uprising nearly two years ago that ousted authoritarian leader Hosni Mubarak.

Mohammed Badie, leader of the Muslim Brotherhood, offered congratulations on the passing of the constitution and said Egyptians continue to "teach" the world.

"Let's all begin to build the renaissance of our country with free will, good intentions and strong determination, men, women, Muslims and Christians," Badie said on his Twitter account. The Brotherhood was the main group that backed the charter.

This is the first constitution since Mubarak's ouster. The opposition had campaigned against it with massive street protests that sometimes turned deadly, arguing that it will usher in Islamic rule in Egypt and restrict freedoms. It has vowed to challenge the referendum results and fight for a share of power in the upcoming parliamentary vote expected within two months.

Judge Samir Abou el-Maati, the head of the electoral commission, denied allegations that judicial supervision was lacking in the vote. He said the total number of people who voted against the constitution was 6.06 million out of 16.7 million valid votes, or about 36.2 percent.

Opposition spokesman Khaled Dawoud said the judge didn't address complaints about overcrowding of polling stations. The opposition says the overcrowding was due to a boycott by some judges who traditionally oversee elections and that was a major factor in the low turnout.

He also said Abou el-Maati did not address violations such as backers of the constitution instructing voters to cast a "yes" ballot within the polling stations.

"We still believe because of the low turnout, this is not the constitution the Egyptians people had aspired for," Dawoud said. "This is not a constitution that will last for a long time."

Dawoud said the National Salvation Front, the main opposition group that brings together liberal, leftists parties and groups, will continue to fight the constitution through preparing for the parliamentary elections. In the parliament, the group will work to amend the constitution, which he said restricts freedoms and undermines social and economic rights of Egyptians.

Abou el-Maati said results were thrown out from polling stations where violations, such as closing early or improper supervision.

He also denied that Christians were preventing from casting their ballots at some stations, a claim widely reported during the two stages of voting on Dec. 15 and Dec. 22.

The official results closely mirror unofficial results announced by the Muslim Brotherhood, which said 64 percent voted "yes."

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Firefighters ambushed by gunman while responding to house fire

Residence near shooting and fire in Webster evacuated. (Max Schulte/Rochester Democrat&Chronicle via Twitter)

A man with a criminal history shot and killed two West Webster, N.Y. firefighters and seriously injured two others as they responded to a fire at his home., police say.

William H. Spengler, Jr., 62, apparently started a 5:35 a.m. fire at his home on Lake Road  and then waited with an armament of weapons for first responders to arrive, Webster N.Y. Police Chief Gerald Pickering said at an afternoon news conference.

“He was shooting from high ground or a berm," Pickering said. "He was barricaded with weapons to shoot first responders."

After a brief exchange of gunfire with police, Spengler then shot and killed himself at the scene, Pickering said.

Spengler was convicted in 1981 in the death of his 92-year-old grandmother a year earlier. He served time in prison and was released in 1998, Pickering said.

Spengler beat Rose Spengler to death with a hammer 1980, the Rochester Democrat and Chronicle reported. Rose Spengler had lived in the home next to William Spengler on Lake Road at the time of her death.

Local police had not noted any criminal activity in his recent past, Pickering said.

Pickering said they are looking into the apparent disappearance of Spengler's sister who is unaccounted for at this time.

Police and fire officials are continuing to gather evidence and will inspect the seven homes that were destroyed in the fire that spread to nearby houses in the small lakeside town located 10 miles east of Rochester.

The victims in the shooting are Mike Chiapperini, also a lieutenant and public information officer with the local police department, and Tomasz Kaczowka, Pickering said.

"These people get up in the middle of the night to fight fires. They don't expect to be shot and killed," a tearful Pickering said at the press conference.

Chiapperini was described by Pickering as a lifelong firefighter who started with the department's explorer program and had about 20 years of experience. Kaczowka was a younger firefighter who was on the force for about two years and was also a 911 dispatcher, he said.

West Webster firefighters Joseph Hofsetter and Theodore Scardino were seriously injured and are at Strong Memorial Hospital with gunshot wounds, a hospital spokeswoman said.  Scardino  has  injuries to his chest and lungs. Hofsetter was injured in the pelvis, the spokeswoman said at a media briefing. Both are in guarded condition, she said.

An off-duty police officer from nearby Greece, N.Y., John Ritter was also injured by shrapnel during the shooting, Pickering said.

Pickering said that one of the firefighters who survived made his way across a bridge to safety. The other three did not make it across, Pickering said. Police arrived and rescued the other three firefighters, but two were fatally shot, Pickering said.

The morning scene was described as chaotic as police and firefighters dealt with an immense blaze as well as gunshots,  local news station WHAM-TV  reports.

“I’m not aware of anything like this happening in Webster, obviously not a firefighter being fired upon,” Webster Fire Marshal Rob Boutillier told the Democrat and Chronicle.  Pickering described Webster as resort lakeside community that is quiet and usually peaceful.

WHAM reported that an outpouring of support has come through the Webster community. Black flags reportedly have been draped at some homes and offices to honor those killed and injured.

N.Y. Gov. Andrew Cuomo tweeted of the incident: We as the community of #NY mourn their loss as now 2 more families must spend the holidays without their loved ones #Webster

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Firefighters ambushed by gunman while responding to house fire

Residence near shooting and fire in Webster evacuated. (Max Schulte/Rochester Democrat&Chronicle via Twitter)

A gunman set a trap and shot and killed two firefighters responding to an early morning blaze in Webster, N.Y., police officials said. Two other firefighters were also shot and both are listed in guarded condition at a local hospital.

"It does appear that it was a trap that was set for first responders, but the cause or reasons we don't have at this time," said Webster Police Chief Gerald Pickering as he described  the scene where shots were fired at West Webster firefighters when they arrived at 5:35 a.m. to battle the blaze along Lake Road. Webster is about 10 miles east of Rochester.

The apparent gunman was found dead at the scene, but it’s unclear if he was killed by  a self-inflicted gunshot or if it was from a weapon from police officers who were chasing him.

The victims were Mike Chiapperini, also a lieutenant and public information officer with the local police department, and Tomasz Kaczowka, Pickering said.

Chiapperini was described by Pickering as a lifelong firefighter who started with the department's explorer program and had about 20 years of experience. Kaczowka was a younger firefighter and was also a 911 dispatcher, he said.

West Webster firefighters Joseph Hofsetter and Theodore Scardino were seriously injured and are at Strong Memorial Hospital with gunshot wounds, a hospital spokeswoman said.  Scardino  has  injuries to his chest and lungs. Hofsetter was injured in the pelvis, the spokeswoman said at a media briefing.

An off-duty police officer from nearby Greece, N.Y.  John Ritter was also injured by shrapnel during the shooting, Pickering said.

Pickering said that one of the firefighters who survived made his way across a bridge to get to safety. The other three did not make it across, Pickering said. Police arrived and rescued the other three firefighters, but two were fatally shot, Pickering said.

"These are volunteers who get up in the middle of the night to fight fires. They don't expect to be shot and killed," a tearful Pickering said at the press conference.

The morning scene was described as chaotic as police and firefighters dealt with an immense blaze as well as gunshots,  local news station WHAM-TV  reports.

“I’m not aware of anything like this happening in Webster, obviously not a firefighter being fired upon,” Webster Fire Marshal Rob Boutillier told the Democrat and Chronicle.  Pickering described Webster as resort lakeside community that is quiet and usually peaceful.

There at least four houses that have been damaged by the fire along Lake Road, WHAM-TV reported. Firefighters had to leave the scene and stop battling the blazes while police secured the scene. They continue to battle the blaze.

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