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Last ditch effort to avoid fiscal cliff under way

Friday - 12/28/2012, 8:07pm  ET

By DAVID ESPO and JIM KUHNHENN
Associated Press

WASHINGTON (AP) - The end game at hand, the White House and Senate leaders made 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 block sweeping spending cuts as well.

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

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 that 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. He cautioned, "Whatever we come up with is going to be imperfect."

House Speaker John Boehner, a Republican who has struggled recently with anti-tax rebels inside his own party, said through an aide he would await the results of the talks between the Senate and White House.

Under a timetable sketched by congressional aides, any agreement would first go to the Senate for a vote. The House would then be asked to assent, possibly as late as Jan. 2, the final full day before a new Congress takes office.

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 favors 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 harbor 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 an estimated 28 million households for the first time with an average increase of more than $3,000.

In addition, Obama and Democrats want to prevent the expiration of unemployment benefits for about 2 million long-term jobless men and women, and there is widespread sentiment in both parties to shelter doctors from a 27 percent cut in Medicare fees.

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

One Republican who was briefed on the White House meeting said Boehner made it clear he would leave in place spending cuts scheduled to take effect unless alternative savings were included in any compromise to offset them. If he prevails, that would defer politically difficult decisions on curtailing government benefit programs like Medicare until 2013.

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 working.

In a brief 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 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 president also booked a highly unusual appearance on Meet the Press for Sunday, yet another indication of his determination to retain the political high ground that came with his re-election.

The guest list for the White House meeting included Reid, McConnell, Boehner and House Democratic leader Nancy Pelosi, D-Calif.

The same group last met more than a month ago and emerged expressing optimism they could strike a deal that avoided the fiscal cliff. At that point, Boehner had already said he was willing to let tax revenues rise as part of an agreement, and the president and his Democratic allies said they were ready to accept spending cuts.

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