UPDATE 3-Congress awaits Obama's return for late push on 'fiscal cliff'

Richard Cowan and Mark Felsenthal
Reuters Middle East

* Obama due back Thursday morning to revive talks

* Lackluster holiday sales add to urgency

* Americans less optimistic of deal averting 'cliff'

WASHINGTON/HONOLULU, Dec 26 (Reuters) - The United States on

Wednesday edged closer to the "fiscal cliff" as Congress waited

for President Barack Obama to return from vacation in Hawaii and

make one final attempt to avoid huge tax hikes and spending cuts

in the New Year.

In the absence of Obama, there was no sign of either side in

Congress making an effort to strike a deal. The corridors of the

Capitol building were empty except for an occasional police

officer, and members' office doors stayed locked.

House of Representatives Speaker John Boehner has not yet

set a date for bringing House members back to Washington from

their Christmas break, an aide of the Republican leader said.

That makes the timing of a vote on any budget deal before Dec.

31 more difficult.

The Boehner aide also said there were no plans for new talks

between the top Republican in Congress and Obama, who flies

overnight and is due back in the White House on Thursday


The inaction notwithstanding, there was still just enough

time to prevent a fiscal crunch that would upset global

financial markets and likely push the United States into


Reports of lackluster retail holiday sales added to the

urgency for a deal. Shoppers might be spending less this holiday

season in fear of looming income tax increases. U.S. stocks fell

on Wednesday, dragged lower by shares of retail companies.

A modest, last-minute measure in Congress to avoid deep

spending cuts set for Jan. 1 and most of the tax hikes could

pass the Democratic-controlled Senate by the New Year, although

Republicans would need to agree not use a procedural roadblock

known as a filibuster.

But senators probably would not make the effort unless there

was a strong signal from Boehner that the House would find a way

to go along.

A Senate Democratic aide downplayed chances for votes this

week in the Senate, but suggested there could be legislative

movement at the weekend.

"We can't do anything until Republicans either give us the

60 votes," which are needed to advance legislation without long

procedural delays, or allow a short-cut that lets bills pass on

a simple majority vote in the 100-member chamber.

The focus in Congress is shifting from broad deficit

reduction to narrower efforts to avert the immediate shock of

the Dec. 31 cliff dive.

"This is the (emergency) scenario that we have long believed

would rise in probability the closer we go to December 31, which

essentially calls for extending all the rates for those

individuals making under $200K and households under $250K and

does not address the debt ceiling or the deficit," analyst Chris

Krueger of Guggenheim Securities wrote in a research note.

Republican Senator Kay Bailey Hutchison of Texas, who is

retiring at year's end, told MSNBC that $250,000 "is too low of

a threshold" for raising income taxes.

She said that in conversations she has had with some Senate

Democrats, "they are saying maybe more in the $400,000 to

$500,000 category."

Obama himself recently offered to raise the threshold to

$400,000, before negotiations with Boehner broke off.


But even if a handful of Senate Republicans support

Democrats on a measure to avoid the worst of the fiscal cliff,

time is short.

When the Senate returns on Thursday it is due to work on a

disaster aid bill to help New York and New Jersey recover from

Superstorm Sandy and other measures.

In the Republican-controlled House, any bill that raises

taxes on anyone would need a rare bipartisan vote to win


All 191 Democrats might have to team up with at least 26

Republicans to get a majority if the bill included tax hikes on

the wealthiest Americans, as Obama is demanding.

Some of those votes could conceivably come from among the 34

Republican members who are either retiring or were defeated in

the November elections and no longer have to worry about the

political fallout.

An alternative is for Congress to let income taxes go up on

everyone as scheduled. Then, during the first week of January,

lawmakers would strike a quick deal to reduce them except on

people in the highest brackets.

They would also pass a measure putting off the $109 billion

in automatic spending cuts that most lawmakers want to avoid.

Once the clock ticks past midnight on Dec. 31, no member of

Congress would have to vote for a tax increase on anyone - taxes

would have risen automatically - and the only votes would be to

decrease tax rates for most Americans back to their 2012 levels.

Americans' optimism that Obama and congressional leaders

will reach a budget agreement before Jan. 1 has waned in recent

days, according to a Gallup poll.

Fifty percent believe a deal will be reached, a drop of 7

percentage points from the previous week, and 48 percent are

doubtful. The poll was taken just after talks ran into trouble

last week.

Starbucks Chief Executive Howard Schultz is urging workers

in the company's roughly 120 Washington-area coffee shops to

write "come together" on customers' cups on Thursday and Friday

to send a message to politicians.

"We're paying attention, we're greatly disappointed in

what's going on and we deserve better," Schultz told Reuters.

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