Wall Street reflected pessimism over prospects for a deal in bitterly divided and stalemated Washington, with the Dow Jones Industrial Average slipping 88.45 points or 0.68 percent an hour into trade.
Obama will meet Republicans, House Speaker John Boehner and Senate Minority Leader Mitch McConnell, and Democratic Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi at the White House at 3.00pm (20.00 GMT).
But the last-ditch talks to head off the fiscal time bomb due to come into force on January 1, may be more about apportioning blame after weeks of political grandstanding.
Going into the talks, neither side showed any sign of shifting from their entrenched positions, in a crisis that threatens to reverse the fragile US recovery, rattle financial markets and cause global economic shockwaves.
Obama, now banking on a stopgap solution after talks on a grand debt and tax bargain with Boehner failed, wants taxes on American families earning more than $250 000 a year to go up but to spare the middle class.
Republicans want to extend George W. Bush-era tax cuts due to expire on Tuesday for everyone and accuse the president of failing to offer meaningful spending cuts in return for them agreeing to raise revenues.
Should Friday’s talks fail, there would be little time for new discussions or to piece together a deal that could negotiate Congress in time to stop the US economy plunging off the fiscal cliff.
All Americans would face higher taxes in a move likely to stifle consumer optimism and draconian government spending cuts due to amount to $1.2 trillion over 10 years would also begin to come into force.
Despite the pessimism, some top lawmakers clung to hope.
“Sometimes, it’s darkest before the dawn,” said Democratic Senator Chuck Schumer on NBC, saying McConnell’s role could be a catalyst for action.
Republican Senator John Thune also expressed optimism, but said that Obama was not serious about cutting government spending.
“Right now, we’re at a stalemate because Democrats haven’t been willing to consider the issue of spending. All they want to deal with now is tax increases.”
In one ominous sign, Debbie Wasserman Shultz, chairwoman of the Democratic National Committee, was already previewing arguments likely to be heard if no deal is reached.
“The Republicans are still really leaving the middle class twisting in the wind, because they’re unwilling to support, particularly the extremist tea partiers in the House Republican Congress, increasing tax rates on the wealthier people who make more than a million a year,” she told MSNBC.
Obama broke off his vacation in Hawaii in search of a last-minute deal and Boehner called the House back to work on Sunday.
The president’s scaled-down solution calls for an extension of tax cuts for people earning less than $250,000, and an extension of unemployment benefits before a wider effort to trim the deficit next year.
But it is doubtful the package could pass the House as restive conservatives last week rebuked Boehner by rejecting his fallback plan which would raise taxes on people earning $1 million.
While each side must for the sake of appearances be seen to be seeking a deal, the easiest way out of the mess might be to allow the economy to go over the cliff, but to fix the problem in the first few days of next year.
In that scenario, Republicans, who are philosophically opposed to raising taxes, could back a bill to lower the newly raised rates on almost all Americans, thus avoiding a politically damaging vote.
Recent polls show that a majority of Americans back Obama’s handling of the crisis, and would blame Republicans for a failure to fix it, so the president could get a short-term political boost from an early deal next year.
Should the stalemate linger however, the crisis would cloud the early months of Obama’s second term and any long-term economic damage would certainly reap a toll on the president’s popularity.
The fiscal cliff showdown has also detracted from Obama’s efforts to prepare for the second term that begins on January 20, and could eventually constrain progress on his top objectives, including gun control and immigration reform.
Reid and McConnell spent Thursday’s public appearances blaming one another for the looming failure.
“I have to be very honest,” Reid told the Senate during a rare holiday week session. “I don’t know time-wise how it can happen now.”
McConnell said he he was “happy” to look at any Obama proposal, but warned: “the truth is we’re coming up against a hard deadline here.” – Sapa-AFP