Obama 'optimistic' about compromise deal

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WASHINGTON -- President Barack Obama and Senate leaders agreed Friday to take a final stab at a compromise that would prevent middle-class tax increases from taking effect at the turn of the new year -- and possibly prevent sweeping spending cuts as well.

"The hour for immediate action is here. It is now," Obama said at the White House after meeting for more than an hour with congressional leaders.

"I'm optimistic we may still be able to reach an agreement that can pass both houses in time," he said. Surprisingly, after weeks of postelection gridlock, Senate leaders sounded even more bullish.

The Republican leader, Sen. Mitch McConnell of Kentucky, said he was "hopeful and optimistic" of a deal, adding he hoped a compromise could be presented to rank-and-file lawmakers as early as Sunday, a little more than 24 hours before the year-end deadline.

"I'm going to do everything I can" to prevent the tax increases and spending cuts that threaten to send the economy into recession, said Majority Leader Harry Reid. He cautioned: "Whatever we come up with is going to be imperfect."

In a brief appearance in the White House briefing room, Obama said the American public is "not going to have any patience for a politically self-inflicted wound to our economy. Not right now."

Officials said there was a general understanding that any agreement would block scheduled income tax increases for middle-class earners while letting rates rise at upper income levels.

Democrats said Obama was sticking to his campaign call for increases above $250,000 in annual income, even though in recent negotiations he said he could accept $400,000.

The two sides also confronted a divide over estate taxes.

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Obama favors a higher tax than is currently in effect, but one senior Republican, Sen. Jon Kyl of Arizona, said he's "totally dead set" against it. Speaking of fellow GOP lawmakers, he said they harbor more opposition to an increase in the estate tax than to letting taxes on income and investments rise for the wealthier.

Also likely to be included in the negotiations:

Taxes on dividends and capital gains, both of which are scheduled to rise with the new year.

The alternative minimum tax, which, if left unchanged, could hit millions of middle- and upper-income taxpayers for the first time.

Obama's call to prevent the expiration of unemployment benefits for the long-term jobless.

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Protecting doctors from a cut in Medicare fees.

One Republican who was briefed on the White House meeting said House Speaker John Boehner (R-Ohio) made it clear he would leave in place spending cuts scheduled to take effect unless alternative savings were found to offset them. If he prevails, that would defer politically difficult decisions on government benefit programs such as Medicare until 2013.

If there is no compromise, Obama said he expects Reid to put Democrats' legislation on the floor to prevent tax increases on the middle class and extend unemployment benefits -- an implicit challenge to Republicans to dare to vote against what polls show is popular.

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