WASHINGTON, Dec 27: The top Democrat in the Senate warned on Thursday that the United States looked to be headed over the ‘fiscal cliff’ of tax hikes and spending cuts that would start next week if squabbling politicians did not reach a deal.

Majority Leader Harry Reid told the Senate in a speech that “it looks like that is where we’re headed”.

He called on the Republicans who controlled the House of Representatives to prevent the worst of the fiscal shock by getting behind a Senate bill to extend existing tax cuts for all except those households earning more than $250,000 a year.

With the House not in session and the clock ticking towards the scheduled January start of tax increases and deep, automatic government spending cuts, Reid offered little hope.

“I don’t know time-wise how it can happen now,” he said.

Referring to the House run by Speaker John Boehner --- the top Republican in Congress --- Reid said, “It’s being operated with a dictatorship of the speaker, not allowing a vast majority of the House of Representatives to get what they want.”

Boehner’s failed effort last week to push his own ‘fiscal cliff’ solution through the House was a ‘debacle’, Reid added.

He also accused Boehner of delaying ‘fiscal cliff’ action until after he sought re-election as House speaker on Jan 3. “John Boehner seems to care more about keeping his speakership than about keeping the nation on firm financial footing,” he added. Reid’s pessimistic remarks sent world stocks, the euro and US shares lower. But Reid’s comments may have been more an attempt to spur Republican rivals into action than a definitive prediction that ‘fiscal cliff’ talks will fail.

President Barack Obama arrived back at the White House from his brief vacation in Hawaii to try to restart stalled negotiations with Congress.

Obama made phone calls to congressional leaders from both parties on Wednesday from Hawaii to try to revive the stalled talks to prevent the ‘fiscal cliff’ scenario, which would worry world financial markets and could push the United States back into recession.

In addition, consumer confidence fell to a four-month low in December as the budget crisis sapped what had been a growing sense of optimism about the economy, a report released on Thursday showed.

“People are hearing about (the cliff) and it negatively impacts confidence and investor sentiment and even holiday sales,” said Todd Schoenberger, managing partner at Landcolt Capital in New York.

The chances of a last-minute deal --- at least one that would prevent tax hikes --- remained uncertain, with Republicans and Democrats each insisting the other side move first amid continuing partisan gridlock.

The House and Senate passed bills months ago reflecting their own sharply divergent positions on the expiring low tax rates, which went into effect during the administration of Republican former president George W. Bush.

Democrats want to allow the tax cuts to expire on the wealthiest Americans. Republicans want to extend the tax cuts for everyone.

“This isn’t a one party or one house problem. This is (that) leaders in both parties in all branches of the government are not willing to make the deal that they know they have to make.

“Everybody wants their stuff but doesn’t want to give up what they don’t want to give up,” Republican US Representative Steven LaTourette told CNN.

Congress has proven that it can act swiftly once an agreement is reached. Hope remained that Republicans and Democrats might come up with a resolution before New Year’s Day that could at least postpone the impact of the tax hikes and spending cuts while further discussions take place.

Another battle is just over the horizon in late January or early February over raising the debt ceiling, which puts a limit on the amount of money the US government can borrow to pay its debts and can be raised only with the approval of Congress.

Republican leaders have said they will insist on more budget cuts as a condition of raising the ceiling.

Without any action, the US Treasury said on Wednesday the government is set to reach its $16.4 trillion debt ceiling on Dec 31.—-Reuters