A breakdown in negotiations could also ignite turmoil in financial markets, Vitner said. It could resemble the 700-point fall in the Dow Jones industrial average in 2008 after the House initially rejected the $700 billion bailout of major banks.
Since President Barack Obama's re-election, nervous investors have sold stocks. The Standard & Poor's 500 index sank 2.3 percent last week, its worst weekly drop since June. The sell-off resulted in part from anxiety over higher tax rates on investment gains once the fiscal cliff kicks in.
Last week, Obama said he was open to compromise with Republican leaders. But the White House said he would veto any bill that would extend tax cuts on income above $250,000.
Republican House Speaker John Boehner countered that higher tax rates on upper-income Americans would slow job growth. Boehner argued that any deal must reduce tax rates, eliminate special-interest loopholes and rein in government benefits.The U.S. government has run annual budget deficits in excess of $1 trillion in each of the last four fiscal years. A report Tuesday showed the government started the 2013 budget year with a $120 billion deficit in October, suggesting a fifth $1 trillion annual deficit is likely. That adds pressure on Obama and Congress to reach a budget deal. Still, most economists want an agreement that would lower the deficit gradually over several years, rather than a sharp cut that could rattle the still-weak economy. More than 50 percent of the tax increases would come from the expiration of tax cuts approved in 2001 and 2003 and from additional tax cuts in a 2009 economic stimulus law. The first set of tax cuts reduced rates on income, investment gains, dividends and estates. They also boosted tax credits for families with children. Deductions for married couples also rose. The 2009 measure increased tax credits for low-income earners and college students.