Fiscal cliff: Optimism between Obama and Congress leaders

President Obama tells congressional leaders they must do the work the American people expect them to do

The US president and Congressional leaders have voiced optimism over resolving the fiscal cliff of tax rises and spending cuts at the end of 2012.

Barack Obama met with leaders at the White House, with Republicans sounding more inclined to back higher taxes in some form.

"I feel confident that a solution may be in sight," said House Democratic leader Nancy Pelosi.

Fears about the so-called fiscal cliff have hurt stocks in recent weeks.

After the meeting, the Republican speaker of the House of Representatives John Boehner said his party - which controls the House - was willing to consider increased revenue "as long as it is accompanied by spending cuts".

Mr Obama met with Mr Boehner, House minority leader Nancy Pelosi (a Democrat), Senate majority leader Harry Reid (a Democrat), Senate minority leader Mitch McConnell (a Republican), as well as Vice President Joe Biden and Treasury Secretary Timothy Geithner.

President Obama has called for high earners in the US to pay more in taxes.

"My hope is this is going to be the beginning of a fruitful process that we're able to come to agreement that will reduce our deficit in a balanced way, that we will deal with some of these long-term impediments to growth and we're also going to be focusing on making sure that middle class families are able to get ahead," Mr Obama said before the talks began.

"I think we're all aware that we have some urgent business to do. We've got to make sure that taxes don't go up on middle class families, that our economy remains strong."

After the meeting, White House press secretary Jay Carney said: "Both sides agreed that while there may be differences in our preferred approaches, we will continue a constructive process to find a solution and come to a conclusion as soon as possible."

What is the fiscal cliff?

  • Under a deal reached last year between President Obama and the Republican-controlled Congress, existing stimulus measures - mostly tax cuts - will expire on 1 January 2013
  • Obligatory cuts to defence, education and other government spending will then automatically come into force - the "fiscal cliff" - unless Congress acts
  • The economy does not have the momentum to absorb the shock from going over the fiscal cliff without going into recession

The fiscal cliff would see the George W Bush-era tax cuts expire in combination with automatic, across-the-board reductions to military and domestic spending.

Some $607bn (£380bn) of savings and tax rises are planned, including reductions in the defence budget, the end of an employee tax holiday, changes to Medicare allowances and higher personal taxes.

The fiscal cliff is due to take effect because Congress failed to reach a deal on deficit reduction after a stand-off over the US debt ceiling in mid-2011.

Mr Boehner was the person who negotiated with Mr Obama the so-called "grand bargain" of spending cuts and new revenues in 2011.

He has said that Republicans - previously strongly opposed to any new tax rises - would be willing to compromise as long as the tax code was reformed and accompanied by changes to benefit programmes.

The International Monetary Fund has warned failure to avert the cuts could knock four percentage points off the US growth rate.

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