Democrat and Republican lawmakers mulled their next move Saturday after leaving Washington for the Christmas holidays without an agreement on averting a year-end fiscal crisis that could lead to stiff tax hikes and drastic budget cuts.
On Friday, US President Barack Obama urged lawmakers to pass a scaled-down tax package to avoid the so-called fiscal cliff.
Obama said he still wanted a comprehensive and large deficit-cutting bill to put the US economy on the path to long-term prosperity, but that effort stalled when talks broke down between the White House and House Republicans this week.
To prevent automatic and massive spending cuts and tax increases due to kick in for all Americans on January 1, Obama called for a stop-gap bill to protect middle-class taxpayers.
"There is absolutely no reason, none, not to protect these Americans from a tax hike. At the very least, let's agree right now on what we already agree on. Let's get that done."
Obama said he met Democratic Senate leader Harry Reid and spoke to Republican House Speaker John Boehner on the phone to discuss a fall-back plan, while stressing he still believed a big compromise was possible.
He asked Congress to next week produce a package that at a minimum prevents a tax hike on the middle class, would extend unemployment insurance and lays the groundwork for further deficit reduction next year.
The move would still satisfy his demand to raise taxes on the richest Americans, as all Bush-era taxes will go up on January 1, and Obama only envisions extending the lower rates for middle class earners.
"Everybody can cool off, everybody can drink some egg nog, have some Christmas cookies, sing some Christmas carols," Obama said.
"Call me a hopeless optimist, but I actually still think that we can get it done," said Obama, who will spend Christmas in his native Hawaii, but told reporters he would be back in Washington next week.
Obama's suggestion would extend tax breaks to 98 percent of Americans -- those earning below $250,000 a year. In talks with Boehner on a larger compromise, the president had offered to raise that threshold to $400,000.
Obama seemed frustrated that Republicans were not willing to offer him a compromise after, in his eyes, he made major concessions to his opponents.
"Nobody gets 100 percent of what they want," he said.
On Thursday, Republicans rejected a bid by Boehner to pass a backup bill to solve the crisis, leaving Washington in turmoil, markets spooked and renewing fears that America's political gridlock could spark a recession.
--- 'Red ink' warning --
Obama's aides privately say they doubt that conservative deficit hawks, who oppose raising taxes as a matter of principle, will ever back a deal agreed with the president.
In that case, Boehner could opt to pass a compromise in the House with the help of votes from minority Democrats -- but that could undermine his position as speaker with his own party.
In the search for a comprehensive bill, Boehner has made an offer to Obama that would raise $1 trillion (759 billion euros) in tax revenue -- mostly through closing loopholes and ending certain deductions -- and another $1 trillion in spending cuts, including in some social programs like Medicare.
"I told the president on Monday these were my bottom lines," Boehner said.
The White House has described its offer as $1.2 trillion in tax revenues and nearly $1 trillion in spending cuts, although Republicans dispute whether all of the austerity measures are real.
In his weekly radio address on Saturday, Boehner said that the president's solution of raising tax rates "would still leave red ink as far as the eye can see".
"What the president has offered so far simply won't do anything to solve our spending problem and begin to address our nation's crippling debt," Boehner said.
"Instead, he wants more spending and more tax hikes that will hurt our economy. And he refuses to challenge the members of his party to deal honestly with entitlement reform and the big issues facing our nation. That is why we find ourselves here today."
Experts, however, say one way to make a tax hike on the wealthy more palatable for Republicans is to not make them vote for one at all.
Should the new year arrive with no deal, taxes will automatically rise for everyone. Congress could then technically vote to lower taxes on the middle class, something conservatives might be more willing to do.