UPDATED 11: 40 AM ET: There is an emerging deal to avert the fiscal cliff, led by negotiations between Senate Minority Leader Mitch McConnell and Vice President Joe Biden, but the key sticking point remains the sequester and deficit reduction, aides say.
Biden and Republican Leader Mitch McConnell exchanged phone calls until about midnight last night and aides continued beyond that, aides tell NBC News. Democratic Leader Harry Reid left Capitol Hill in the evening Sunday and was not directly involved last night.
NBC's Chuck Todd weighs in on the chance of a fiscal cliff deal just hours before the deadline, saying it "really depends on the political motivations" of the people at the negotiation table.
Aides say the Vice President and McConnell spoke at 12:45 am and again at 6:30 am this morning. GOP sources say the inclusion of the vice president has made a favorable difference in the talks, given his understanding of legislation and his personal relationships.
Two senior aides to McConnell continued with White House representatives overnight and again today.
GOP aides say they expect their party to likely defer its biggest fight over deficit reduction when the debt-ceiling debate takes center stage in the new year. Republicans say given the time left, there is limited, if no chance, to secure specific detailed alternative spending cuts right now.
Republicans would like to see the "sequester" across the board cuts kept in place to drive down the deficit, but Democrats are resisting that and offer a two-year delay.
But Democrats caution that the "emerging deal" which "creates another cliff in three months probably would not have the votes to pass the two chambers." That is a reference to the looming fights over the debt ceiling and the overall government budget deadline in March.
Rep. Barbara Lee, D-Calif., talks about the latest developments on the fiscal cliff, and why she thinks Congress hasn't come to a resolution.
Democrats also argue the new revenue generated by tax increases, especially if reduced from the Democrats' earlier targets, should be used to cover the costs of delaying the automatic spending cuts for two years and protecting the long-term jobless with extended benefits.
Cuts that would go into effect as a result of the sequester would be deep and across the board. The discretionary cuts were signed into law in an effort law to compel Washington to address the long-term deficit. So far, the parties have been unable to agree on replacement cuts that would be targeted and therefore less arbitrary.
The most recent Democratic offer on taxes, presented on Saturday night, is setting the new income threshold at $450,000, sources say. That represents an increase over the president's original $250,000 threshold for higher rates and Obama's later offer to Boehner of $400,000.
Rep. Jeff Flake, R-Ariz., opposes any delay of the sequester, when steep, automatic spending cuts will slash budgets at the Pentagon and other government agencies. Flake says he'll take any fiscal cliff deal that prevents a tax hike for most Americans.
Senior Republicans say the GOP is looking for a figure at about $550,000, down from House Speaker John Boehner's $1 million and retaining current estate tax rates. That could mean, say various members, a split-the-difference deal at $500,000.
Significant progress has been made on the income tax threshold and estates taxes, but the figures will not be set in stone until all details are resolved, including unemployment benefits, preventing a scheduled cut to medical provider's Medicare payments (know as the Doc Fix), and a fix to remove millions of middle class taxpayers from the "alternative minimum tax."
The taxes being discussed, by the way, would be made permanent and not given a "sunset provision" in law, which is unusual. There would be no expiration date like the one that forced this debate.