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With hours remaining, US fiscal deal uncertain

The chances of a deal to prevent the US economy from tumbling over a "fiscal cliff" remain uncertain.

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WASHINGTON: It was designed to be the budget cut so painful, so indiscriminate, so downright mindless that even a gridlocked Congress wouldn't allow it to happen.

Now, it looks like it's going to happen.

The Senate majority leader, Harry Reid, and minority leader, Mitch McConnell, spent the weekend working on a last-ditch deal to spare the vast majority of Americans a dramatic tax rise on Tuesday.

The US Capitol dome and it's reflection in Washington as the fiscal cliff deadline looms.

The fiscal cliff deadline looms. Photo: AFP

But even if they reached a stripped-down agreement, aides in both parties said it would be unlikely to address the other part of the ''fiscal cliff'', an automatic $110 billion reduction in government spending, split evenly between military and domestic programs, scheduled to take effect on Wednesday.

''Undoubtedly, we will take a hit,'' the Democratic congressman Gerry Connolly said. His Northern Virginia district was inhabited with thousands of government employees and contractors. ''It's going to result in a steady retrenchment in government investment in both the civilian and defence sectors. That's going to affect employment and the robustness of our economic growth in this region.''

Fiscal-cliff talks remained in flux and the details of a final deal, if there was one, remained unclear. But at a White House meeting of the US President, Barack Obama, and congressional leaders on Friday, the House Speaker, John Boehner, said he could not agree to delay or call off the automatic cuts unless Congress agreed to enact an alternative package of reductions of matching size.

That would seem a tall order given that spending cuts had been at the heart of the partisan divide over the past two years. A House Republican said after the Friday meeting that ''it was clear that the sequester is not likely to be addressed in any immediate agreement''.

And although Mr Obama vowed in an October debate with the Republican presidential nominee, Mitt Romney, that the cuts ''would not happen'', White House officials were telling allies their focus for now was merely to spare the middle class a tax rise.

The problem with sequestration was not so much the size of the cuts but their scope.

With the exception of a few programs specifically spared by Congress - including Medicaid, Medicare benefits and food stamps - every government account would be sliced by the almost same amount.

All domestic programs that were not specifically shielded would face an 8.2 per cent cut next year. Military programs would be cut by 9.4 per cent.

''You do need cuts. But sequestration is not the way to go,'' the Republican congressman Frank Wolf said. ''It's literally a meat axe without any thought behind it.''

If leaders let sequestration take effect this week but promise to deal with it in a few months, when Congress debates a new debt-ceiling increase, Mr Connolly said Americans would have the right to be sceptical.

''Never think something is unthinkable,'' he said. ''That's been the lesson here.''

Washington Post