U.S. leaders push talks to edge of fiscal cliff

WASHINGTON – The end game at hand, the White House and 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 postelection 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 Sunday, a little more than 24 hours before the year-end deadline.

Said 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 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 is currently in effect, 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. Also the alternative minimum tax, which, if left unchanged, could hit millions of middle- and upper-income taxpayers for the first time.

In addition, Democrats want to prevent the expiration 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 Republican House Speaker John Boehner made it clear he would leave in place spending cuts scheduled to take effect unless alternative savings were found to offset them. If he prevails, that would defer politically difficult decisions on government benefit programs like Medicare until 2013.

If there is no compromise, Obama said he expects Reid to introduce legislation 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.