Last stab to avoid going over cliff

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ANDREW HARRER / MCCLATCHY TRIBUNE NEWS SERVICE U.S. President Barack Obama briefs the media on the White House fiscal cliff talks. (TRIBUNE MEDIA MCT)

WASHINGTON -- The end game at hand, the White House and U.S. Senate leaders took a final stab at compromise Friday night to prevent middle-class tax increases from taking effect at the turn of the new year and possibly prevent sweeping spending cuts as well.

"I'm optimistic we may still be able to reach an agreement that can pass both houses in time," U.S. President Barack Obama said at the White House after meeting for more than an hour with congressional leaders.

Surprisingly, after weeks of post-election gridlock, Senate leaders sounded even more bullish.

The Republican leader, Sen. Mitch McConnell of Kentucky, said he was "hopeful and optimistic" of a deal, adding he hoped a compromise could be presented to rank-and-file lawmakers as early as today, a little more than 24 hours before the year-end deadline.

Said Senate majority leader Harry Reid: "I'm going to do everything I can" to prevent the tax increases and spending cuts that threaten to send the economy into recession. But "whatever we come up with is going to be imperfect."

Officials said there was a general understanding that any agreement would block scheduled income-tax increases for middle-class earners while letting rates rise at upper income levels. Democrats said Obama was sticking to his campaign call for increases above $250,000 in annual income, even though in recent negotiations he said he could accept $400,000.

The two sides also confronted a divide over estate taxes.

Obama favours a higher tax than currently, but one senior Republican, Sen. Jon Kyl of Arizona, said he's "totally dead set" against it. Speaking of fellow GOP lawmakers, he said they harbour more opposition to an increase in the estate tax than to letting taxes on income and investments rise at upper levels.

Also likely to be included in the negotiations are taxes on dividends and capital gains, both of which are scheduled to rise with the new year, as is the alternative minimum tax, which, if left unchanged, could hit millions of middle- and upper-income taxpayers for the first time.

In addition, Obama and Democrats want to prevent the expiry of unemployment benefits for the long-term jobless, and there is widespread sentiment in both parties to shelter doctors from a cut in Medicare fees.

The White House has shown increased concern about a possible spike in milk prices if a farm bill is not passed in the next few days, although it is not clear whether that issue might be included in the talks.

One Republican who was briefed on the White House meeting said House Speaker John Boehner made clear he would leave in place the scheduled spending cuts unless alternative savings were found to offset them.

If he prevails, that would defer politically difficult decisions on government benefit programs such as Medicare until 2013.

In a short appearance in the White House briefing room, Obama referred to "dysfunction in Washington," and said the American public is "not going to have any patience for a politically self-inflicted wound to our economy. Not right now."

If there is no compromise, he said he expects Reid to put legislation on the Senate floor to prevent tax increases on the middle class and extend unemployment benefits -- an implicit challenge to Republicans to dare to vote against what polls show is popular. The White House meeting included Reid, McConnell, Boehner and House Democratic leader Nancy Pelosi.

The same group last met more than a month ago and emerged expressing optimism they could strike a deal that avoided the fiscal cliff. But since then, talks between Obama and Boehner faltered, the Speaker struggled to control his rebellious rank and file, and Reid and McConnell sparred almost daily in speeches on the Senate floor.

Through it all, Wall Street has paid close attention, and in the moments before the meeting, stocks were trading lower for the fifth day in a row.

The core issue is Obama's campaign promise to keep income--tax rates the same for the middle class but raise the marginal rate for single taxpayers earning above $200,000 and families earning above $250,000 a year. He proposed that rate should rise to 39.6 per cent from the current 35 per cent.

Boehner refused for weeks to accept any rate increases, and simultaneously accused Obama of skimping on spending cuts he would support.

-- The Associated Press

Republished from the Winnipeg Free Press print edition December 29, 2012 A1