PRESIDENT BARACK Obama cut short his holiday and returned to Washington as a senior Democrat warned the US appeared to be heading over the year-end “fiscal cliff” of higher taxes and deep spending cuts that could spin the still-fragile economy back into a recession.
The treasury secretary warned the government would hit its borrowing limit on Monday, the final day of the year.
Mr Obama made phone calls to congressional leaders before leaving his Hawaiian holiday for Washington, the White House said.
The US appears to be headed over the fiscal cliff, warned Senate Democratic Leader Harry Reid, who criticised his counterpart in the House of Representatives, Speaker John Boehner, for not calling House members back to work.
Consumer confidence fell to its lowest monthly level since August and stocks were falling on Wall Street at midday.
Treasury Secretary Timothy Geithner told Congress he would take “extraordinary measures as authorised by law” to postpone a government default.
However, he said uncertainty over the outcome of the fiscal cliff negotiations made it difficult to determine how much time those measures would buy.
In recent days, Mr Obama’s aides have been consulting with Mr Reid’s office but Republicans have not been part of the discussions, suggesting much still needs to be done before Congress can pass a deal, even a small one, by Monday.
Tax cuts expire on December 31 and revert to the higher rates in place during the administration of President Bill Clinton in the 1990s. This means $536 billion (£333 billion) in tax increases would affect nearly all Americans. In addition, the military and other federal departments would have to cut $110 billion (£68 billion) in spending.
The changes are part of a long-delayed need for the government to address its chronic deficit spending.
While economists have warned about the impact of such a massive and abrupt shift, both the Mr Obama administration and Congress appear to be proceeding as if they have more than just four days left.
Congress could still act in January in time to retroactively counter the effect on most taxpayers and government agencies but chances for a large deficit reduction package would likely be put off.