US faces crucial day of 'fiscal cliff' talks 30 December 2012 Last updated at 12:01 US President Barack Obama: "Agreement is being discussed as we speak" US politicians are facing a crucial day of talks aimed at preventing the so-called "fiscal cliff." Congress must reach a deal by the end of the year to avert steep spending cuts and tax rises due to take effect. President Barack Obama has said he is "modestly optimistic" that Senate leaders can craft a bill that could win approval in both chambers of Congress. If they fail, taxes will significantly rise for most Americans, raising fears of a US economic slowdown. Republicans and Democrats tried to resolve the looming crisis in 2011 but failed, instead signing temporary agreements which postponed the deadlock until the end of 2012. Democrat Senate leader Harry Reid and his Republican counterpart Mitch McConnell have been locked in negotiations over the weekend, in an otherwise closed-down Capitol. According to the Washington Post, they have set themselves a deadline of 15:00 local time (20:00 GMT) to reach a compromise agreement, after which they will convene caucus meetings of their members and decide whether the measure has enough support to be put to a vote. The Senate could then vote on the measure and allow the House of Representatives enough time on Monday to consider it, said the paper. But Republican and Democratic leaders remain divided over core ideological issues about tax and government funding. There is also debate over where to set the threshold for tax rises. Democrats say previously approved tax cuts should be extended for all Americans except the richest, those with annual earnings of more than $250,000 (£155,000), who should pay more. Republicans want the tax threshold set higher, at around $400,000, and for revenue to be raised by economic growth and cuts in social security and mandatory spending programmes. President Obama is scheduled to make a rare appearance on NBC's Meet the Press on Sunday. He has urged negotiators to reach a deal, even if the resulting legislation is an unhappy compromise for both sides which defers resolution of some elements under discussion. The country "just can't afford a politically self-inflicted wound to our economy," he said, warning that if they fail, "every American's paycheck will get a lot smaller." "Congress can prevent it from happening, if they act now," he said. Some Republicans have pledged never to vote for increased taxes. There are some indications they could oppose any deal which included higher taxes. If Mr Reid and Mr McConnell cannot reach a deal by the end of the year, Mr Obama has said he will seek a vote to prevent tax rises on incomes up to $250,000 and ensure unemployment insurance is continued. That, he says, is the "bare minimum" Congress should get done before 1 January. End to benefits The term fiscal cliff refers to the combination of almost $600bn (£370bn) of tax rises and spending cuts due to come into force on 1 January if Congress fails to pass new legislation. Fear is that raising taxes while massively cutting spending will have a huge impact on households and businesses Benefits for the long-term unemployed, which could mean more than two million Americans immediately stopped receiving payments