The U.S. Congress and the White House had just hours Monday before a midnight deadline to come to a deal to avoid the so-called "fiscal cliff" of austerity measures that threaten the still-weak economy, as an increasingly frustrated country wondered why its bitterly divided leaders couldn't come to terms even in crisis.
Unless an agreement is reached and approved by Congress by the start of New Year's Day, more than a half-trillion dollars in tax increases for nearly all Americans will begin to take effect, and $109 billion will be cut from defense and domestic programs. Though both would be felt gradually, economists warn that if allowed to fully take hold, their combined impact would rekindle a recession.
The House of Representatives and the Senate were meeting Monday, a rarity for New Year's Eve, in hopes of having a tentative agreement to consider.
Republicans, who control the House, are scared of raising taxes. Democrats, who control the Senate and are in the White House, are scared of cutting spending.
Each side is scared of looking like it's giving in to the other.
Meanwhile, the country's chronic deficit spending continues without a deal to address it.
"This whole thing is a national embarrassment," Sen. Bob Corker, a Republican, said Monday on MSNBC, adding that any solution Congress would come to at this late stage would be inconsequential.
World and U.S. markets were fairly calm Monday, perhaps on hopes that the tax hikes and spending cuts largely could be held at bay for a few weeks and then repealed retroactively if a deal is reached.
"Negotiations are continuing as I speak," Senate Majority Leader Harry Reid, Democrat, said Monday. "But we really are running out of time."
If there's no deal, the effects could be harsh. The nation would lose up to 3.4 million jobs, the Congressional Budget Office has predicted. And budget cuts of 8 percent or 9 percent would hit most of the federal government.
And if the limit isn't raised on how much the government can borrow, the government's reaching the $16.4 trillion ceiling in February or March could lead to a first-ever default that would shake worldwide confidence in the United States.
On top of that, the current Congress is in session only through midday Jan. 3. After that, a newly elected Congress with 13 new senators and 82 new House members would inherit the problem.
On Monday, congressional officials familiar with talks that opened over the weekend between Vice President Joe Biden and his former colleague, Senate Republican leader Mitch McConnell, said one major sticking point was whether to postpone the spending cuts.
Republicans want to replace across-the-board reductions with targeted cuts elsewhere in the budget, while the White House and Democrats want to offset at least some of the cuts with the revenue from tax increases. Senate Democrats were pushing hard against a Republican proposal for just a three-month delay in the across-the-board cuts.
A senior defense official said if the spending cuts were triggered, the Pentagon would soon begin notifying its 800,000 civilian employees to expect furloughs _ mandatory unpaid leave, not layoffs. The official requested anonymity because the official was not authorized to discuss the preparations
At the same time, Democrats said the two sides were closing in on an agreement over taxes. They said the White House had proposed blocking a tax increase for most Americans, while letting rates rise for individuals with incomes of $400,000 a year and $450,000 for couples. That's concession from President Barack Obama's call during his re-election campaign to set the levels at $200,000 and $250,000.
Officials who described the negotiations did so on condition of anonymity, citing the confidential nature of the discussions.
An unusual Sunday session of the Senate had showed little progress, despite Senate chaplain Barry Black's opening prayer in which he asked, "Look with favor on our nation and save us from self-inflicted wounds."
Obama's meeting with top congressional leaders Friday appeared to have been little help.
Associated Press writers Alan Fram, Andrew Taylor, David Espo, Julie Pace and Robert Burns contributed to this report.