WRAPUP 5-U.S. 'fiscal cliff' talks picking up pace

Mon Dec 10, 2012 10:30pm EST

* Activity in private quickens as Jan. 1 deadline nears

* White House says Obama believes deal can be reached

* Republican Portman calls for give and take

* Financial markets less concerned about political process

By Richard Cowan

WASHINGTON, Dec 10 (Reuters) - The White House and House of Representatives Speaker John Boehner's office held more negotiations on Monday on ways to break the stalemate over the "fiscal cliff," steep tax hikes and budget cuts set to start kicking in next month.

Neither side gave any public signs that they were ready to give ground. And a House Republican leadership aide said, "There is no deal or anything like it" on resolving fiscal cliff issues.

On Capitol Hill, however, there were indications that preparations were under way for quick legislative consideration of a deal if one is reached soon.

The most discussed scenario - which remains nothing more substantial than that - has Democrats getting the tax increases on high earners they favor in exchange for significant concessions that would help reduce the costs of Medicare, the government healthcare program for seniors.

Democrats and Republicans next year would also work together on comprehensive tax reform aimed at bringing in more revenues to the government, in part by eliminating some tax breaks.

As similar deficit reduction talks between Boehner and President Barack Obama in 2011 showed, negotiations that seem promising one day can fall apart the next.

And if Obama and Boehner were to tentatively agree on such a package, the two would have to sell the plan to Democratic and Republican lawmakers in the Senate and House.

According to one senior Democratic aide, the two sides also are talking about including an increase in U.S. borrowing authority, which Obama wants before Congress wraps up for the year.

Without such authority, the Treasury is likely to hit its $16.4 trillion borrowing limit by year's end and run out of creative steps to stave off default as soon as mid-February.

Another sign of potential progress was a conciliatory opinion article published late Monday in The Wall Street Journal by Republican Senator Rob Portman of Ohio.

Portman, a former top budget official in the administration of President George W. Bush, wrote that while he disagrees with Obama's desire to raise taxes on high earners, "negotiations require give and take."

Portman urged Obama to offer up proposals to cut entitlements such as Medicare and reform the tax code, suggesting that if he did, Republicans would be "eager to work with him" to avert the cliff.

Portman joins a growing chorus of Republicans, particularly in the Senate, who have signaled flexibility.

The talks gained urgency after Republican Boehner met at the White House with Obama on Sunday, raising hopes of progress in averting the cliff.

But while striking a more conciliatory tone, both sides kept to a familiar public script in the weeks-long standoff. Obama renewed his call for higher tax rates for the richest Americans, which most Republicans oppose, while Republican leaders urged Obama to submit a new offer with specific spending cuts he would back.

Economists say going over the fiscal cliff could throw the U.S. economy back into a recession.

On a road trip to Michigan to drum up support for his stance, Obama said he was willing to compromise on some things but not on his demand that Republicans support an increase in tax rates for the wealthiest 2 percent of Americans.

"What you need is a package that keeps taxes where they are for middle-class families, we make some tough spending cuts on things that we don't need, and then we ask the wealthiest Americans to pay a slightly higher tax rate, and that's a principle I won't compromise on," Obama said during a visit to an auto plant in Redford, Michigan.

Early on Monday, Boehner spokesman Michael Steel said Republicans were still waiting for the president to make a new offer that identifies the spending cuts he will make in the deficit-reduction negotiations.

"The Republican offer made last week remains the Republican offer," Steel said, adding the two sides were holding staff-level talks on Monday.

Boehner and the House Republican leadership submitted their terms for a deal to the White House last week, after Obama presented his opening proposal. Both sides seek to cut budget deficits by more than $4 trillion over the next 10 years but differ drastically on how to get there.

Boehner and Republicans oppose letting any tax rates increase and prefer to find new revenues by closing loopholes and limiting deductions. Republicans also want deeper spending cuts than Obama has offered in entitlements like Medicare and Medicaid, the healthcare program for the poor and disabled.

Democrats have insisted that tax rates for the richest must be nailed down before negotiating further on how to proceed with tax reform efforts or new spending cuts in entitlement programs.

'A DEAL IS POSSIBLE'

"I can only say that the president believes that a deal is possible," White House spokesman Jay Carney told reporters on the flight to Michigan. "But it requires acceptance and acknowledgement in a concrete way by Republicans that the top 2 percent will see an increase in their rates."

Polling shows most Americans would blame Republicans if the country goes over the cliff, and pressure has been building from some Republicans for Boehner to get an agreement quickly, even if it means tax hikes on the wealthiest.

U.S. stocks edged higher on Monday but moves remained muted as investors looked for any signs of movement on the fiscal cliff front.

The S&P 500 index has nearly retraced the 5.3 percent slide it suffered in the first seven sessions after the Nov. 6 presidential election.

"The sentiment has definitely changed," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York. "The market has become somewhat desensitized to headlines out of Washington because the fear of the economy hitting a wall in 2013 if we don't get a deal done has diminished."