Talks intensified Friday as congressional leaders and PresidentObama worked to avert a combination of tax hikes and budget cutsscheduled to go into effect Tuesday that economists fear could sendthe economy into recession.

Amid harsh words Thursday from Senate Majority Leader HarryReid, D-Nev., and House Speaker John A. Boehner, R-Ohio, Boehnersaid he would call the House back into session Sunday night. TheSenate is already in session.

At the same time, Senate Minority Leader Mitch McConnell, R-Ky.,for the first time was engaged directly in talks with the WhiteHouse. The Washington Post said that “signaled an interestin cutting a deal.”

This apparently marks just the fifth time since the 1930s thatmembers of Congress have been called into a post-Christmassession.

Washington Analysis analyst Joe Lieber cautions that, in theunlikely event that a deal is reached over the next couple of days,“it will be narrow in scope, and will likely lead to considerablefiscal drag in 2013 (perhaps as high as 2-2.6 percent of GDP).”

In addition, he says he would not expect a debt-limitextension to be included in any deal, “meaning that Congress willbe facing the issue once again in February, as well as the need fornew legislation to fund the federal government near the end ofMarch, when the current funding measure expires.

“Consequently, any stock-market relief as a result of afiscal-cliff deal could very well be short-lived as investors shifttheir focus to the uncertainty ahead.”

CCH, a Wolters Kluwer business and leading global provider oftax, accounting and audit-information, software and services, saysthat if no agreement is reached and the Bush-era tax cuts fullyexpire, the estate tax would also revert to 2001 levels—a $1million per person exemption and a 55 percent maximum rate.

Currently, the per-person exemption is $5.12 million, with a35-percent maximum estate tax.

According to LOMA, if Congress fails to act, 14.7 million U.S.households would have a potential estate-tax liability.

This is a key area of concern for insurance agents, whichoperate as small businesses, because they want to pass theirbusinesses down to their children, and a high tax bill upon deathof the agency owner could force the family to sell thebusiness.

“While a deal looked close on several occasions duringnegotiations, it's been elusive so far,” says George Jones, CCHsenior federal tax analyst. “Whether a resolution can be reachedbefore Congress recesses for the year grows dimmer as the daysprogress.”

But he adds, “Even if we go over the fiscal cliff, Congresscould act early next year to reach a compromise and make anyagreement retroactive to the beginning of the year. However, thiswould not be the ideal scenario for most taxpayers, businesses orinvestors—most of whom would prefer some degree of certaintyheading into 2013.”

Republicans are demanding that President Obama take the lead inproposing a solution.

According to Lieber, President Obama's last proposalwould:

• Extend tax cuts for those making below $250,000.
• Extend emergency unemployment insurance.
• Patch the alternative minimum tax (AMT).
• Patch the scheduled cut to Medicare physicians (“docfix”).
• Avert the sequester.

Lieber said in an investor's note late Thursday that to getRepublicans to support his proposals, Obama would have to move thethreshold on taxes to $400,000 or higher, and even then it wouldstill be an uphill battle.

“We continue to believe that any bill that can possibly be votedon in the lame duck session would have to be passed in the Senatefirst,” Lieber said.

“Reid has stated that he won't bring anything to the floorunless Boehner assures him it will pass the House as well,” headds.