Congressional leaders optimistic after meeting Obama

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					WASHINGTON (Reuters) - 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

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 December 31 deadline.

Starting on January 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 deficit-reduction measures.

Nonpartisan budget forecasters say failure to reach a deal could push the
U.S. economy back into recession and drive up the unemployment rate.

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

The S&P 500 stock index has dropped 4.7 percent since the November 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 last week.

"I think we're all aware that we have some urgent business to do," Obama
told reporters at the beginning of the meeting.

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 spending environment.

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 advocacy group.

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 taxes.

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

"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.

(Additional reporting by Thomas Ferraro, Richard Cowan, Mark Felsenthal
and Patrick Temple-West in Washington; Writing by Andy Sullivan and
Patricia Zengerle; Editing by Fred Barbash and Peter Cooney)

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