1 Jan 2013

Tax deal in sight - Obama

12:43 pm on 1 January 2013

US President Barack Obama says it appears an agreement is in sight between Democrats and Republicans to prevent an increase in taxes.

But Mr Obama said on Monday the agreement is not done yet.

"Today it appears that an agreement to prevent this New Year's tax hike is within sight, but it is not done," he said at the White House.

"There are still issues left to resolve, but we're hopeful that Congress can get it done, but it's not done."

Automatic tax rises and spending cuts are due to take effect on 1 January which economists say could propel the United States back into recession.

The BBC reports the deadline was put in place in 2011 to force the president and Congress to agree on ways to save money over the next 10 years.

A series of automatic spending cuts are intended to save an estimated $US1.2 trillion over 10 years, with particularly steep cuts in the defence sector.

Mr Obama said the deal would tackle America's budget and deficit problems in several steps, rather than in a single, comprehensive deal.

He said the deal would ensure that taxes do not go up for middle income families.

Mr Obama stressed that it would include an extension of unemployment benefits for the long-term jobless and extension of popular tax credits.

He also said that if Republicans think he will finish the job of deficit reduction through spending cuts alone, they have another think coming.

Radio New Zealand's Washington correspondent said it was a curious appearance by the President, who went on the offensive and criticised his Republican opponents.

Any deal needs to pass the Senate, which is controlled by Democrats, and then the House of Representatives, where Republicans hold the majority.

Tax cuts first

Senate Republican leader Mitch McConnell said on Monday that agreements with Democrats have been reached on all tax issues and the Senate should not delay in passing them.

Speaking on the Senate floor, Senator McConnell said he agreed with President Obama that the automatic spending cuts can be worked on in the coming months and it was important to pass the tax relief portion now.

However, the House of Representatives won't vote on any deal before the deadline of midnight on Monday.

Tuesday is a public holiday in the United States, so no immediate effects will be felt.

Both parties remain at odds over $US109 billion in automatic spending cuts to the Pentagon budget and other federal agencies.