STEVE INSKEEP, HOST:
On the final day of the year, it's MORNING EDITION from NPR News. I'm Steve Inskeep.
DAVID GREENE, HOST:
And I'm David Greene.
We still do not know if taxes will be going up as the ball in New York City's Times Square goes down.
INSKEEP: Congressional negotiators are still discussing ways at the White House to avoid the higher tax rates and spending cuts due to take effect after midnight tonight.
GREENE: Now, it would not be fair to say that Congress has left another crisis to the last minute. We've got hours and hours before the last minute at 11:59 tonight.
INSKEEP: But it is fair to say that talks have staggered into the final day.
NPR White House correspondent Scott Horsley is on the line. Scott, good morning.
SCOTT HORSLEY, BYLINE: Good morning. Happy New Year's Eve.
INSKEEP: Happy New Year's Eve indeed. And of course you're going to be working throughout the day. Things looked pretty bad yesterday in these negotiations. Then Vice President Biden gets involved. What's happening here?
HORSLEY: Vice President Biden has been conferring with Senate Republican leader Mitch McConnell. Those two were longtime Senate colleagues. And sometimes in the past Biden has provided a useful back channel for negotiation. Senator McConnell called him in yesterday after failing to reach an agreement with the Democratic majority leader in the Senate, Harry Reid.
At one point the Senate Republicans were insisting that any deal should include a revised measure of inflation that would result in smaller cost-of-living adjustments for Social Security recipients. Democrats objected. The GOP eventually dropped that demand. But Senator Reid says the two sides remain a significant distance apart.
INSKEEP: OK, let's remember here, there's a discussion of the tax rates that are supposed to part of this. There's a discussion of spending that may or may not be part of this. Then the question is the cost-of-living increases in Social Security and so forth; that was going to be part of the deal. Now it is not, according to the White House, on the table. Why that change?
HORSLEY: Well, you're right. When the president was negotiating one-on-one with House Speaker Boehner back before the Christmas holidays, Mr. Obama was willing to make concessions on Social Security. He was also offering significant cuts to Medicare and other entitlement spending. But in exchange, he wanted a lot of new tax revenue, a hike in the debt ceiling, some additional spending on unemployment insurance and public works.
Democrats still hope to get that extension of un employment insurance benefits, but otherwise there's really no more big bargain in sight. The best we are hoping for now is a stop-gap measure. And you know, if deficit reduction really is their goal, as they say, Republicans could end up kicking themselves about the deal they let get away two weeks ago.
GREENE: Scott, you mentioned this stop-gap measure. I mean is - what exactly happens at 11:59 tonight, if there's no big deal?
HORSLEY: Well, it's not an instant catastrophe, David. You know, the fiscal cliff has been described in these apocalyptic terms...
HORSLEY: ...of a $500 billion hit to the economy, between the tax increases and the spending cuts. But that's over the full year and it wouldn't happen all at once, and many of those effects could be reversed. In fact, the president has adopted a tough bargaining position, precisely because he's willing to go over the cliff if necessary.
Here he is speaking yesterday on NBC's "Meet the Press."
(SOUNDBITE OF TV SHOW, "MEET THE PRESS")
PRESIDENT BARACK OBAMA: And if all else fails, if Republicans do in fact decide to block it, so that taxes on middle class families do in fact go up on January 1, then we'll come back with a new Congress on January 4 and the first bill that will be introduced on the floor will be to cut taxes on middle class families.
And you know, I don't think the average person is going to say, gosh, you know, that's a - that's a really partisan agenda on the part of either the president or Democrats in Congress. I think people will say that makes sense, because that's what the economy needs right now. So one way or another we'll get through this.
GREENE: He doesn't sound that worried.
HORSLEY: No, he doesn't. And as I said, the worst effects could be reversed. But you know, consumer confidence has already taken a hit from this prolonged stalemate. The stock market tumbled last week. Asian stocks are off this morning. Financial markets, the broader business community, and frankly, most Americans would really like to see some signal from Washington that politicians can cooperate.
We're already looking at a two percent cut in people's take-home pay with the New Year, when the payroll tax holiday expires. So the last thing we need right now is more stress because lawmakers can't make a deal.
INSKEEP: OK, Scott, thanks very much.
HORSLEY: My pleasure.
INSKEEP: That's NPR's White House correspondent Scott Horsley. Transcript provided by NPR, Copyright NPR.