WASHINGTON Amid a global fright over Washington's political brinkmanship, U.S. lawmakers return to the capital on Tuesday with a seven-week deadline to reach agreement on scheduled tax hikes and budget cuts that threaten to trigger another recession.
The post-election battle over the so-called fiscal cliff is shaping up as an extension of the political campaign with Democrats trying to rally support for raising taxes on the wealthy as part of any deal, and Republicans countering that such an approach would devastate "job creators" across the country.
President Barack Obama has scheduled high-profile White House meetings with business, civic and labor leaders in advance of a summit set for Friday of top Republicans and Democrats in Congress.
Republican leaders, among them former vice presidential nominee Paul Ryan, have planned their own round of television appearances and news conferences to make their case.
Both sides generally agree on the need to avoid the jolt of $600 billion in draconian deficit-reduction measures they all agreed to in August 2011. They also agree on a need for long-term deficit reduction and revisions of the tax code.
They are at odds, as they were during the election campaign, over how to get over the immediate crisis, with the main disagreement focusing on whether to extend tax cuts for everyone, as Republicans want, or just for those earning below $250,000, as the president wants.
The president and congressional Republicans have sounded conciliatory notes since the election on reaching a deal. But it was clear on Monday that the two sides were still far apart, setting up prolonged debate that could keep investors on edge for the rest of the year.
Obama won re-election last week but Congress remains divided, with Democrats controlling the Senate and Republicans running the House of Representatives.
ECONOMISTS CALL FOR COMPROMISE
In a commentary that raised eyebrows in Washington, economist Glenn Hubbard, who was the chief economic adviser to Republican presidential candidate Mitt Romney, urged Republicans to accept an increase in average tax rates, though not in marginal tax rates as advocated by President Obama, as part of a long-term deficit solution.
Tuesday, a group of 350 economists, organized by a largely liberal group called "Campaign for America's Future," will issue a statement urging both sides to cease their "obsessive concern with cutting deficits" amid a "fragile" economic recovery.
The widespread sentiment of market analysts was reflected in a memo by PNC strategists noting that while the elections "brought some clarity" to the cliff situation, "significant uncertainty remains in the outlook regarding timing and composition of a fiscal cliff deal.
"The longer it takes the president and Congress to negotiate a deal, the higher the odds that the U.S. fiscal situation will unhinge the progress made during the past three years of economic recovery."
The president's staff released a list of business leaders expected Wednesday at the White House, following Tuesday's event with labor leaders, including AFL-CIO president Richard Trumka.
General Electric Co CEO Jeff Immelt will attend, as well as American Express Co Chairman and CEO Kenneth Chenault.
Both are involved in an ad hoc lobby group called "Fix the Debt," which is launching an advertising campaign this week on behalf of balanced, long-term deficit reduction.
The CEOs of 17 big U.S. companies involved with "Fix the Debt" have written lawmakers urging speedy resolution of the fiscal cliff. Their letter will be delivered on Tuesday, when Congress reconvenes.
The city is awash in petitions, letters of concern, editorial recommendations and expensive lobbying efforts, particularly by the defense and healthcare industries, which stand to lose billions of dollars.
Universities and research institutions have also organized to fight the cuts, fearing a massive loss of federal funding of research, particularly in the biological sciences.
The nation's mayors, who see great risks to the many federal aid programs for the cities, have also organized against the cuts.
While the budget cuts and tax hikes are not formally linked, they have become intertwined politically because of timing: both take effect at the beginning of 2013.
Republican leaders have conceded they could support higher taxes, but that the extra revenues should come from getting rid of tax loopholes - not by increasing anyone's tax rates.
"We think you can get that through growth and we think you can get that through reforming the tax code," Representative Peter Roskam, a senior House Republican, told Fox News.
Democrats also looked unwilling to budge, sticking to their demand for higher rates for the rich.
"Unless you're willing to deal with rates ... you don't really touch the very wealthiest Americans," Representative John Yarmuth, a Democrat from Kentucky, told MSNBC.
A senior House Republican aide said he doesn't expect any significant movement on the cliff until after Obama's meeting on Friday with congressional leaders, if then.
"The meeting with the president should get the ball rolling in a serious way," the aide said.
(Additional reporting by Thomas Ferraro in Washington; Editing by Fred Barbash and Lisa Shumaker)