US President Barack Obama and Republican House Speaker John Boehner on Monday made strides towards a deal to avert a year-end tax and spending crisis that could spark a recession.
Obama offered Boehner his latest counter-proposal in a tortuous negotiating process now homing in on a January 1 deadline, offering a major compromise on the income level affected by his demand to raise taxes on the rich.
The latest plan would raise the threshold at which higher rates would come into force to households earning $400,000 a year and above, up from the $250,000 level on which Obama had earlier insisted.
Obama's new proposal offers $1.2 trillion in revenue hikes and an identical level in spending cuts designed to trim the deficit, a source familiar with the plan, designed to avert the "fiscal cliff" crisis, said.
The president had initially insisted in $1.6 trillion in higher revenue from raising taxes and then lowered the number to $1.4 trillion. Boehner has now reportedly offered $1 trillion in new revenues.
Details of a new offer emerged after Obama and Boehner held their latest meeting, a 45-minute encounter at the White House on Monday, raising hopes that a deal can be struck to put before Congress before the year-end deadline.
Republicans gave a cautious welcome to the White House moves, though also disputed the mathematical assumptions of Obama's new proposal, leaving the impression that neither side has reached its final bargaining position.
"Any movement away from the unrealistic offers the president has made previously is a step in the right direction," said Boehner spokesman Michael Steel.
But he added: "A proposal that includes $1.3 trillion in revenue for only $930 billion in spending cuts cannot be considered balanced."
"We hope to continue discussions with the president so we can reach an agreement that is truly balanced and begins to solve our spending problem," he said.
If no deal is reached by the end of the year, all Americans will face tax rises and a punishing round of automatic spending cuts to government programs will kick in, in what would be a painful double hit for the economy.
Obama had previously wanted to allow George W. Bush-era tax cuts to expire on the richest two percent of Americans and to extend them for the rest of the country. Republicans want tax cuts to be extended for everyone.
The president's proposal would also raise the US debt ceiling -- the amount that the government can borrow to finance its debts -- for two years. Boehner has reportedly offered a one-year extension.
But the plan includes a provision for Congress to try to override increases in government borrowing at various points -- a mechanism House Republicans have previously rejected.
Every time the US government comes up against its spending limit, Congress has to vote to raise it so Washington can service its debt. A US default could trigger global economic contagion.
The Treasury says the United States will hit its statutory borrowing limit near the end of the year, but says it can take emergency measures to push off the moment of crisis for a few months.
The country's current debt is around $16.2 trillion, and continued borrowing needs to finance the budget shortfall will send the government past the fixed $16.39 trillion level.
If Boehner and Obama strike a deal in the coming days -- which manages to pass both chambers of Congress -- a massive cloud of uncertainty would be removed from the US and global economies.
Senate Majority Leader Harry Reid, a Democrat, warned fellow senators to prepare for an abbreviated Christmas holiday.
"It appears that we're going to be coming back on the day after Christmas to complete work on the fiscal cliff," Reid said. Republican House Majority Leader Eric Cantor said as much last week.