"Fiscal cliff" talks stalled for now but progress possible

Darkness sets in over the U.S. Capitol building hours before U.S. President Barack Obama is set to deliver his State of the Union address to a joint session of Congress on Capitol Hill in Washington January 24, 2012.

WASHINGTON (Reuters) - U.S. lawmakers have made little progress in the past 10 days toward a compromise to avoid the harsh tax increases and government spending cuts scheduled for January 1, a senior Democratic senator said on Sunday.

The United States is on course to slash its budget deficit nearly in half next year. Closing the gap that quickly, which in Washington is referred to as going over a "fiscal cliff," could easily trigger a recession.

"Unfortunately, for the last 10 days, with the House and Congress gone for the Thanksgiving recess ... much progress hasn't been made," Dick Durbin, the No. 2 Senate Democrat, told ABC's "This Week" program.

Still, lawmakers in both the Democratic and Republican parties have been trying to convince the public - and financial markets - that they are willing to compromise and can reach a deal before the end of the year.

Durbin indicated Democrats might accept a reform of the government's Medicare health insurance program for the elderly that would make higher-income seniors pay more for their care.

Democrats traditionally oppose limiting Medicare benefits according to income, a practice known as "means testing." Durbin said Medicaid, a public health insurance program for the poor, also could be overhauled.

"We can make meaningful reforms in Medicare and Medicaid without compromising the integrity of the program, making sure that the beneficiaries are not paying the price for it, except perhaps the high-income beneficiaries," Durbin said.

A deadline looms over the talks. Without action by lawmakers and President Barack Obama, roughly $600 billion in tax increases and spending cuts will start to hit households and companies in early January.

Republicans and Obama's Democrats are at an impasse over the president's wish to raise income tax rates on the wealthiest Americans, which Republicans say would hurt job creation.

Republicans also want to cut spending on social programs more than Democrats say they will accept.

Still, a growing group of Republican lawmakers are loosening their ties to Grover Norquist, the anti-tax activist famous for getting elected officials to sign a pledge that they will vote against any tax increases.

Republican Senator Lindsey Graham said Republicans will allow tax revenues to rise as long as social spending programs are reformed. "I will violate the pledge - long story short - for the good of the country, only if Democrats will do entitlement reform," he told "This Week."

Graham said he supported boosting revenues by closing tax loopholes rather than by raising tax rates.

Republican Senator Saxby Chambliss said last week he "cared more about the country" than a 20-year-old pledge, and on Sunday Republican Representative Peter King, chairman of the House Homeland Security Committee, told NBC's "Meet the Press" he agreed with Chambliss.

Durbin said the Democrats' will for substantial entitlement reform did not extend to Social Security, the federal government pension program, which he said only needs small tweaks to ensure long-term solvency.

"Bring entitlement reform into the conversation. Social Security, set (it) aside," Durbin said.

(Additional reporting by Patricia Zengerle; Editing by Todd Eastham and Bill Trott)