* Opening talks aim to avert major tax hikes, spending cuts
* Could set the template for weeks of negotiations
* Stock markets close up on hopes for deal
By Lisa Lambert and Patricia Zengerle
WASHINGTON, Nov 16 Republican and Democratic
congressional leaders emerged from a meeting with President
Barack Obama on Friday pledging to find common ground on taxes
and spending that would allow them to avert an upcoming "fiscal
cliff" that could send the economy back into recession.
The top lawmakers spoke to reporters as a group for the
first time in more than a year in what aides said was a joint
decision to project a message of unity.
Each side at least signaled a willingness to put "on the
table" issues dear to the two parties for decades, agreeing on a
framework to discuss both tax and entitlement reform next year.
The two Democrats, Senate Majority Leader Harry Reid and
Nancy Pelosi, the minority leader in the House of
Representatives, said they recognized the need to curb spending.
John Boehner, the Republican speaker of the House, and Mitch
McConnell, who leads the party in the Senate, said they had
agreed to put "revenue on the table" as the two sides enter what
are likely to be weeks of tense negotiations before a Dec. 31
Starting on Jan. 2, about $600 billion worth of tax
increases and spending reductions, including $109 billion in
cuts to domestic and defense programs, will begin to kick in if
Congress cannot decide how to replace them with less extreme
Nonpartisan budget forecasters say failure to reach a deal
could push the U.S. economy back into recession and drive up the
Both sides are eager to reassure the public that Washington
will not see a repeat of the white-knuckle budget standoffs that
spooked consumers and investors last year.
"We have the cornerstones of being able to work something
out," Reid said, standing outside the White House after a
meeting with Obama, Vice President Joe Biden and other top
officials that lasted more than an hour.
The S&P 500 stock index has dropped 4.7 percent since the
Nov. 6 election as investors have turned their attention to the
uncertainty surrounding the fiscal cliff.
But stocks closed up on Friday on hopes that politicians
would find common ground to steer clear of the danger.
The meeting marked the first time Obama, a Democrat, sat
down with his Republican opposition since he won re-election
"I think we're all aware that we have some urgent business
to do," Obama told reporters at the beginning of the meeting.
ROOM FOR COMPROMISE?
Obama says tax rates on the wealthiest 2 percent of
Americans must rise, while Republicans say they will not agree
to any rate increase.
Republicans are also eager to rein in government health
costs, which are projected to explode over the coming decade.
"We're prepared to put revenue on the table provided we fix
the real problem," McConnell said, referring to Medicare and
other government benefit programs.
There could be room for compromise.
Obama could agree to allow the top tax rate to rise to
something less than the 39.6 percent he wants. Policymakers, for
example, could also agree to limit the tax increase to
households making more than $500,000 annually, rather than the
$250,000 cap Obama is demanding.
Republicans have suggested generating more revenue by
limiting tax breaks for the wealthiest, rather than raising
their rates. Obama has said that would not raise enough money.
While the government may have a little flexibility in
softening the full impact of the budget cuts, Treasury Secretary
Timothy Geithner told Bloomberg TV on Friday the Treasury
Department did not have the authority to delay the tax increases
that would take effect at the start of next year if the White
House and Congress fail to reach a deal.
Business leaders say the uncertainty is already weighing on
the economy as employers postpone hiring and capital
expenditures until they get a better sense of the tax and
Pelosi suggested two sides might forge a temporary deal that
would get them past the fiscal cliff and give them more time to
work out a more lasting solution. Lawmakers will almost
certainly not have time to retool Medicare and overhaul the
outdated tax code before the end of the year, but a preliminary
agreement could provide a framework for doing so later.
Following the hour-long White House meeting, Boehner said
he had "outlined a framework that deals with reforming our tax
code and reforming our spending."
A Boehner aide, who asked not to be identified, said later
the spending cuts would cover "entitlements" - the large federal
benefit programs that include Medicare healthcare for the
elderly and Medicaid for the poor.
"The speaker spoke about a framework going into next year,"
Pelosi said. "I was focusing on how we send a message of
competence to consumers, to the markets, in the short run, too."
Leaders of civic groups who met with Obama at the White
House later on Friday, said the president assured them he would
use his leverage to cut the best deal possible.
"He campaigned around tax fairness and the fact that
everyone would do their part, and in particular the most wealthy
would find a way to make their fair contribution," said Janet
Murguia, president of the National Council of La Raza, a Latino
Boehner faces a delicate balancing act as he will have to
sell any deal to rank-and-file conservatives, many of whom
believe they owe it to their constituents to hold the line on
But after Obama won re-election and fellow Democrats picked
up seats in the House and Senate last week, Republicans may be
more willing to show that they can balance their ideals with the
demands of the country as a whole.
"Going over the fiscal cliff, in my view, is a bucket of
crazy," Republican Representative Peter Roskam, one of Boehner's
deputies, said at a budget conference.