In his first news conference since winning re-election last week, Obama said he would be open to considering Republican priorities like entitlement reform and a tax-code overhaul as part of a broad-based deal to get the nation's finances on a sustainable course.
But Obama said Republicans in Congress would first have to agree to his top priority in the complex negotiations aimed at preventing a $600 billion combination of tax increases and spending cuts known as the "fiscal cliff" that could halt the weak economic recovery at the beginning of next year.
"We cannot afford to extend the Bush tax cuts for the wealthy. What we can do is make sure that middle-class taxes don't go up" Obama said, shortly before meeting with a dozen business leaders who are pushing policymakers to reach a deal.
Obama's remarks, and unyielding comments from Republican leaders earlier this week, begin a long and possibly tense period of bargaining and rinkmanship that could leave a cloud of uncertainty over the economy leading up to the Christmas holidays and beyond.
"I believe this is solvable. I think that fair-minded people can come to an agreement that does not cause the economy to go back into recession, that protects middle-class families, that focuses on jobs and growth and reduces our deficit" Obama said.
Both Republicans and Democrats want to keep low income tax rates in place for middle-income and low-income households, but Democrats say the wealthiest 2 percent should have to pay the higher rates that were in place in the 1990s.
Obama made increased taxes on the wealthy a centerpiece of his re-election campaign, and polls show public opinion is on his side. Obama is reaching beyond Washington to ramp up pressure on Republicans and has already met with labor and liberal groups to build support for his approach.
Republican leaders have indicated some willingness to compromise. While they oppose Obama's plan to raise tax rates on the wealthiest 2 percent of U.S. taxpayers, they have said they might go along with a deal that would raise additional tax revenue by limiting tax breaks for the wealthy.
If the two sides do not reach a deal by the end of the year, tax rates on income and investments will rise for all Americans and government programs from the military to education will face deep, across-the-board cuts. A broad range of business tax breaks for everything from wind power to research costs would expire as well.
That could cause the economy to shrink by 0.5 percent and push the unemployment rate up to 9.1 percent by the end of next year, according to the Congressional Budget Office. The current unemployment rate is 7.9 percent. The deadline comes from years of dysfunction as lawmakers and presidents have postponed tough decisions on fixing the nation's finances.
Obama and Republicans could settle on a temporary deal that would give them more time to reach compromise, or agree to the outlines of a far-reaching budget plan that could boost the economy in the short term and rein in the country's growing debt burden over the coming decade.
US stocks fell on Wednesday, erasing earlier gains, as strong earnings from technology bellwether Cisco were not enough to offset investor anxiety over the fiscal cliff and the European debt crisis. ? Reuters
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