Obama says 'hour for immediate action is here' on 'fiscal cliff,' optimistic on a deal

WASHINGTON – President Barack Obama and Senate leaders launched last-minute talks Friday to avoid the severe austerity measures known as the “fiscal cliff” that automatically begin next week and threaten the U.S. economy’s fragile recovery.

As the Jan. 1 deadline nears, Obama and the leaders of Congress held a high-stakes meeting Friday afternoon to try to reach a deal to avoid tax increases for most Americans and deep spending cuts. The meeting lasted a little over an hour and Obama later spoke to the media about the talks.

“The hour for immediate action is here,” said Obama, who said the meeting was “good and constructive.”

The Senate’s top Democrat and Republican emerged from the meeting to say they were entering talks with the White House aimed at avoiding the fiscal cliff. Majority Leader Harry Reid and Republican leader Mitch McConnell gave a relatively upbeat assessment after the duo and top House leaders had what McConnell called a “good” meeting with Obama.

“I am hopeful and optimistic” of reaching an agreement after months of gridlock, McConnell said.

He said he hoped for a compromise that could be presented to rank and file lawmakers by Sunday, little more than 24 hours before the year-end deadline.

Reid said, “I’m going to do everything I can” to make a deal happen. He cautioned, “Whatever we come up with is going to be imperfect.”

If Congress can’t reach a broad deal to rein in deficit spending, Obama said Congress should allow a vote on a basic package that would preserve tax cuts for middle-class Americans while extending unemployment benefits for the long-term jobless and working toward a foundation for a broader deal.

Success was far from guaranteed in an atmosphere of political mistrust — even on a slimmed-down deal that postponed hard decisions about spending cuts into 2013 — in a Capitol where lawmakers grumbled about the likelihood of spending the new year holiday in the Capitol.

“The clock is ticking,” Sen. Max Baucus, chairman of the Senate Finance Committee, said in remarks on the Senate floor as Obama and congressional leaders were meeting several blocks away at the White House. “My message to them is simple. We can do this. We can get this done, and we must.”

Congressional Democrats said Obama was ready with a revised offer to present.

But that drew a denial from a person familiar with the talks, who said the president would review his proposal from a week ago, when he urged lawmakers to preserve tax cuts for most while letting rates rise above incomes of $250,000 a year. At the same time, Obama said lawmakers should extend unemployment benefits for the long-term jobless. The person was unauthorized to discuss the private meeting publicly and spoke on condition of anonymity.

House of Representatives Speaker John Boehner, House Democratic Leader Nancy Pelosi, McConnell and Reid and were all attending Friday’s White House meeting. Vice-President Joe Biden and Treasury Secretary Timothy Geithner also were attending.

Obama’s Friday meeting with Congressional leaders — the first since Nov. 16 —happened after the president cut short his Hawaiian holiday to return to Washington. It likely centred on which income thresholds would face higher tax rates, extending unemployment insurance and preventing a cut in federal Medicare payments to doctors, among other issues.

For Obama, the eleventh-hour scramble represented a test of how he would balance strength derived from his re-election against an avowed commitment to compromise in the face of divided government. Despite early talk of a grand bargain between Obama and Boehner that would reduce deficits by more than $2 trillion, the expectations were now far less ambitious

Both the White House and Congress are in this situation because of their inability, or unwillingness, in recent years to come to terms with the country’s chronic deficit spending. A bitterly divided Congress hasn’t helped.

Adding pressure was this week’s warning from Geithner that the government would hit its $16.4 trillion borrowing limit on Monday, the final day of the year. That would make it harder for the U.S. to pay its bills.

Republicans and Democrats said privately that any agreement would likely include an extension of middle-class tax cuts that had been set to expire at the end of the year, with increased tax rates at upper incomes —a priority that was central to Obama’s re-election campaign.

A key question was whether Obama would agree to abandon his insistence during his re-election campaign on raising taxes on households earning more than $250,000 a year and instead accept a $400,000 threshold like the one he has offered in negotiations with Boehner.

The deal also would likely put off the scheduled spending cuts and extend expiring unemployment benefits, officials said.

If a deal were to pass the Democratic-controlled Senate, Boehner would have to agree to take it to the floor in the Republican-controlled House.

Boehner discussed the fiscal cliff with Republican members in a conference call Thursday. Rep. Tom Cole, an ally of the speaker, did not rule out Republican support for some increase in tax rates — which Republicans have adamantly opposed for decades.

The stock market was down again Friday amid the developments in Washington. Economists say that if the tax increases are allowed to hit most Americans and if the spending cuts aren’t scaled back, the recovering but fragile economy could sustain a shock.

But a sentiment is taking hold that Congress could weather the fiscal cliff without significant economic consequences if it acts decisively next month.

The debate over spending cuts, however, would have to start anew.


Associated Press writers Jim Kunnhehn, Alan Fram, Charles Babington and David Espo contributed to this report.