By ANDREW TAYLOR, THE ASSOCIATED PRESS
WASHINGTON — Newly re-elected President Barack Obama will use a White House appearance to set the tone for upcoming talks with congressional Republicans on avoiding the so-called fiscal cliff.
Republicans continue to draw a line in the sand against higher tax rates for upper-income earners as they seek to topple the conventional wisdom that Obama has the upper hand in upcoming negotiations on averting the potentially economy-crippling set of tax increases and automatic spending cuts due to hit in January.
Obama faces a tough, core decision: Does he pick a fight and risk a prolonged impasse with Republicans or does he rush to compromise and risk alienating Democrats still celebrating his victory?
Many of his Democratic allies hope Obama will take a hard line when he addresses the matter Friday. Republicans warn that a fight could poison efforts for a rapprochement in a bitterly divided Capitol and threaten his second-term agenda.
Obama has been silent since his victory speech early Wednesday morning, but Capitol Hill Republicans have filled the vacuum with vows to stand resolutely against any effort by the president to fulfill a campaign promise to raise the top two income tax rates to Clinton-era levels.
"Raising tax rates is unacceptable," House Speaker John Boehner, R-Ohio, declared Thursday on ABC. "Frankly, it couldn't even pass the House. I'm not sure it could pass the Senate."
A lot is at stake. A new Congressional Budget Office report on Thursday predicted that the economy would fall into recession if there is a protracted impasse in Washington and the government falls off the fiscal cliff for the entire year. Though most Capitol-watchers think that a long deadlock is unlikely, the analysts say such a scenario would cause a spike in the jobless rate to 9.1 percent by next fall.
Some analysts believe that the fiscal cliff is more like a fiscal slope and that the economy could weather a short-term expiration of the Bush-era tax cuts and that the government could manage a wave of automatic spending cuts for a few weeks. But at a minimum, going over the fiscal cliff would mean delays in filing taxes and obtaining refunds and would rattle financial markets as the economy struggles to recover.
The CBO analysis says that the cliff – a combination of automatic tax increases and spending cuts – would cut the deficit by $503 billion through next September, but that the fiscal austerity would cause the economy to shrink by 0.5 percent next year and cost millions of jobs.
The new study estimates that the nation's gross domestic product would grow by 2.2 percent next year if all Bush-era tax rates were extended and would expand by almost 3 percent if Obama's 2 percentage point payroll tax cut and current jobless benefits for the long-term unemployed were extended as well.
All sides say that they want a deal and that now that the election is over everyone can show more flexibility than in the heat of the campaign.
Obama is not expected to offer specifics immediately. His long-held position – repeatedly rejected by Republicans – is that tax rates on family income over $250,000 should jump back up to Clinton-era levels.
Republicans say they're willing to consider new tax revenue but only through drafting a new tax code that lowers rates and eliminates some deductions and wasteful tax breaks. And they're insisting on cuts to Medicare, Medicaid and food stamps, known as entitlement programs in Washington-speak.
The current assumption is that any agreement would be a multistep process that would begin this year with a down payment on the deficit and on action to stave off more than the tax increases and $109 billion in across-the-board cuts to the Pentagon budget and a variety of domestic programs next year.
The initial round is likely to set binding targets on revenue levels and spending cuts, but the details would probably be enacted next year.
While some of that heavy work would be left for next year, a raft of tough decisions would have to be made in the next six weeks. They could include the overall amount of deficit savings and achieving agreement on how much would come from revenue increases and how much would be cut from costly health care programs, the Pentagon and the day-to-day operating budgets of domestic Cabinet agencies.
Democrats are sure to press for a guarantee that tax reform doesn't end up hurting middle-income taxpayers at the expense of upper-bracket earners. Republicans want to press for corporate tax reform and a guarantee that the top rate paid by individuals and small businesses goes down along the way.
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2012 -- Barack Obama
U.S. President Barack Obama waves to supporters following his victory speech on election night in Chicago, Illinois on November 6, 2012. (JEWEL SAMAD/AFP/Getty Images)
2008 -- Barack Obama
Nov. 4, 2008: U.S. president-elect Barack Obama waves at his supporters during his election night victory rally at Grant Park in Chicago. (JEWEL SAMAD/AFP/Getty Images)
2004 -- George W. Bush
In this Nov. 3, 2004 file photo, President George W. Bush and first lady Laura Bush salute and wave during an election victory rally at the Ronald Reagan Building and International Trade Center in Washington. (AP Photo/Charles Dharapak, File)
2000 -- George W. Bush
U.S. Republican presidential candidate and Texas Governor George W. Bush casts his vote in Austin, Texas on November 7, 2000. (PAUL RICHARDS/AFP/Getty Images)
1996 -- Bill Clinton
President Bill Clinton, wife Hillary and daughter Chelsea wave to supporters in front of the Old State House during an election night celebration in Little Rock, Ark. on Tuesday, Nov. 5, 1996. (AP Photo/David Longstreath)
1992 -- Bill Clinton
Bill Clinton and Al Gore celebrate in Little Rock, Arkansas after winning in a landslide election on November 3, 1992. (AP Photo)
1988 -- George H. W. Bush
President-elect George Bush and his family celebrate his victory on November 8,1988 at the Brown Convention Center in Houston. (WALT FRERCK/AFP/Getty Images) <em><strong>CORRECTION:</strong> An earlier version of this slide was titled "George W. Bush." It has been fixed.</em>
1984 -- Ronald Reagan
President Ronald Reagan gives a thumbs-up to supporters at the Century Plaza Hotel in Los Angeles as he celebrates his re-election, Nov. 6, 1984, with first lady Nancy Reagan at his side. (AP Photo/File)
1980 -- Ronald Reagan
President-elect Ronald Reagan and wife Nancy wave to well-wishers on Tuesday, Nov. 4, 1980 at Century Plaza Hotel in Los Angeles after his election victory. (AP Photo)
1976 -- Jimmy Carter
Democratic presidential candidate Jimmy Carter embraces his wife Rosalynn after receiving the final news of his victory in the national general election on November 2, 1976. (Photo by Hulton Archive/Getty Images)
1972 -- Richard Nixon
U.S. President Richard M. Nixon meets at Camp David, Maryland, on November 13, 1972 to discuss the Vietnam situation with Secretary of State Henry A. Kissinger (L) and Maj. Gen. Alexander M. Haig Jr.(R), Deputy Assistant to the President for National Security Affairs. (Photo by AFP PHOTO/NATIONAL ARCHIVE/Getty Images)
1968 -- Richard Nixon
President-elect Richard M. Nixon and his wife, Pat, were a picture of joy at the Waldorf-Astoria Hotel in New York, Nov. 6, 1968, as he thanked campaign workers. At left are David Eisenhower, Julie Nixon's fiance, Julie and her sister Tricia at center. (AP Photo)
1964 -- Lyndon Johnson
President Lyndon Johnson proves he's a pretty good cowhand as he puts his horse, Lady B, through the paces of rounding up a Hereford yearling on his LBJ Ranch near Stonewall, Texas, on November 4, 1964. (AP Photo/Bill Hudson)
1960 -- John F. Kennedy
Caroline Kennedy peeps over the shoulder of her father, Senator John F. Kennedy, as he gave her a piggy-back ride November 9, 1960 at the Kennedy residence in Hyannis Port, Mass. It was the first chance president-elect Kennedy had to relax with his daughter in weeks. (AP Photo)
1956 -- Dwight D. Eisenhower
President Dwight D. Eisenhower and Vice President Richard Nixon salute cheering workers and Republicans at GOP election headquarters in Washington, November 7, 1956, after Adlai Stevenson conceded. (AP Photo)
1952 -- Dwight D. Eisenhower
President-elect Dwight Eisenhower and first lady-elect Mamie Eisenhower wave to the cheering, singing crowd in the Grand Ballroom of the Hotel Commodore in New York City on Nov. 5, 1952 after Gov. Adlai Stevenson conceded defeat. (AP Photo/Matty Zimmerman)
1948 -- Harry S. Truman
U.S. President Harry S. Truman holds up an Election Day edition of the Chicago Daily Tribune, which, based on early results, mistakenly announced "Dewey Defeats Truman" on November 4, 1948. The president told well-wishers at St. Louis' Union Station, "That is one for the books!" (AP Photo/Byron Rollins)
1944 -- Franklin D. Roosevelt
President Franklin Roosevelt greets a young admirer as he sits outside his home in Hyde Park, N.Y., on election night, November 7, 1944. Behind him stands his daughter, Mrs. Anna Roosevelt Boettinger and the first lady, Eleanor Roosevelt. (AP Photo)
1940 -- Franklin D. Roosevelt
American President Franklin Delano Roosevelt (1882 - 1945) speaking to a crowd of 25,000 at Madison Square Garden in New York on Nov. 8, 1940, before his sweeping re-election for a third term. (Photo by Fox Photos/Getty Images)
1936 -- Franklin D. Roosevelt
The Republican Governor of Kansas and presidential candidate, Alfred Landon (1887 - 1987) greeting the American President Franklin Delano Roosevelt (1882 - 1945) (seated) prior to the presidential elections. Future United States President Harry S. Truman can been seen in the background. (Photo by Keystone/Getty Images)
1932 -- Franklin D. Roosevelt
Governor Franklin D. Roosevelt of New York at his Hyde Park, N.Y. home November 6, 1932, seen at the conclusion of the arduous months of campaigning following his presidential nomination in Chicago. (AP Photo)
1928 -- Herbert Hoover
President-elect Herbert Hoover is seated at a table with wife, Lou, and joined by other family members on Nov. 9, 1928. Standing from left: Allan Hoover; son; Margaret Hoover, with husband, Herbert Hoover, Jr.,at right. Peggy Ann Hoover, daughter of Herbert Hoover Jr., sits with her grandmother. (AP Photo)
1924 -- Calvin Coolidge
U.S. President Calvin Coolidge and first lady Grace Coolidge are shown with their dog at the White House portico in Washington, D.C., on Nov. 5, 1924. (AP Photo)
1920 -- Warren Harding
Senator Warren Harding, with wife Florence and his father George, shown on Aug. 27, 1920. (AP Photo)
1916 -- Woodrow Wilson
Surrounded by crowds, President Woodrow Wilson throws out the first ball at a baseball game in Washington in this 1916 photo. (AP Photo)
1912 -- Woodrow Wilson
Woodrow Wilson (1856 - 1924), the future American president, casts his vote while Governor of New Jersey, on Nov. 14, 1912. (Photo by Topical Press Agency/Getty Images)