"Major setback" in "fiscal cliff" talks, says Dem source

Though he is expected to qualify that he has not given up on talks with his House counterparts, Reid will brace his caucus for a new offer from Republicans, who in exchange for letting the tax cuts expire for the wealthiest Americans, are proposing a Social Security cut called "chained" consumer price index (CPI), which would measure inflation at a different rate, resulting in lower Social Security payments for recipients.

Democrats said this idea is a "poison pill" - a non-starter - and say they don't have the votes in their caucus for a plan that includes "chained" CPI.

During brief remarks on the Senate floor this afternoon, Senate Minority Leader Mitch McConnell, R-Ky., said his office submitted the offer Saturday at 7:10 p.m. ET, and "offered to work through the night to find common ground." Reid said he'd respond by 10 a.m. today, despite the "obvious time crunch," McConnell said, but added, "it's now 2 p.m. and we've yet to receive a response to our good-faith offer."

"We all know that we're running out of time," McConnell said. "I'm willing to get this done, but I need a dance partner."

Immediately following McConnell's remarks, Reid took the podium to announce, "At this stage, we're not able to make a counter-offer. ...The Republican leader has told me that, and he's just said here, that he's working with the vice president," Reid continued. "I wish them well."

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Twenty-five minutes later, Reid spoke again, saying that while there are "still serious differences" between Republicans' and Democrats' proposals, "we've made a lot of progress. I appreciate very much Sen. McConnell's good-faith efforts, and I'm confident that he feels the same way about me."

Still, Reid said, "The one thing I do want to mention is that we're not gonna have any Social Security cuts. At this stage, that just doesn't seem appropriate.

"We're open to discussion about entitlement reforms, but we're going to have to take it in a different direction," he continued. "We're willing to make difficult concessions as part of a balanced, comprehensive agreement. But we'll not agree to cut Social Security benefits as part of a smaller, short-term agreement, especially if that agreement gives more handouts to the rich."

Reid advised his fellow senators to "hang loose" in the event that a deal is reached and a vote comes up later this evening.

"At some point in the negotiating process, it appears that there are things that stop us from moving forward," he said. "I hope we're not there, but we're getting real close. And that's why I still hold out hope that we can get something done. But I'm not overly optimistic, but I am cautiously optimistic that we can get something done."

Meanwhile, during his prayer to open the Senate this afternoon, the Senate's chaplain appealed to a higher power to assist in the "fiscal cliff" fight.

"Let us feel your presence today on Capitol Hill," said Senate Chaplain Barry Black. "Look with favor on our nation and save us from self-inflicted wounds."

Following a brief recess for Christmas, members of Congress returned to Washington on Thursday, scrambling to patch together even a makeshift bridge across the "cliff" at year's end, when a series of tax hikes and spending cuts is scheduled to go into effect, potentially hurling the U.S. economy into a dangerous recession.