Obama call for 'tough compromises' in fiscal cliff talks

With only weeks to avoid steep automatic budget cuts and tax hikes that could send the country back into recession, the leaders said they were seeking to map out a deal on long-term deficit reduction that included both higher revenues and lower spending.

Obama opened the talks, 10 days after his re-election victory, saying Americans "want to see that we are focused on them, not on the politics here in Washington."

"Our challenge is to make sure that we're able to cooperate together, work together, find some common ground, make some tough compromises, build some consensus to do the people's business."

Obama's Republican opposite John Boehner, speaker of the House of Representatives, emerged from the initial session saying they had laid a framework for a deal that represented "a fair and balanced approach."

"To show our seriousness, we've put revenue on the table. As long as it's accompanied by significant spending cuts."

Harry Reid, Democratic leader of the Senate, said the group was committed to reaching agreement after many months of deadlock.

"There is no more, 'let's do it some other time,'" he said. "This isn't something we're going to wait until the last day of December to get it done."

The group, which also included Senate Republican chief Mitch McConnell, and Nancy Pelosi, the leader of the minority Democrats in the House, was under pressure from the public and the markets to strike a deal that averts the immediate threat of a year-end crunch.

The cliff involves a series of steep across-the-board budget cuts and effective tax increases from expiring temporary cuts slated to hit on January 1 that could suck more than $500 billion out of the economy.

Both sides generally support extending the tax cuts, though Obama strongly insisted on Wednesday that he wanted taxes to go up for the richest two percent of Americans, which Boehner has rejected.

But there was no mention of that issue as the two sides entered the White House for the initial meeting.

Obama only stressed the need to protect middle class Americans.

"We have to make sure that taxes don't go up on middle class families and that our economy remains strong and creating jobs, and that's an agenda that Democrats and Republicans and Independents, people all across the country share," he said.

Afterwards, Obama's spokesman said the group had "agreed to do everything possible to find a solution" to avoid the cliff.

But doing so appeared closely linked to agreeing the broad lines of a deal on slashing the long-term deficit, an issue which has locked up policy-making in Washington for two years.

Even if the fiscal cliff is avoided, the government still will be confronted with a massive debt load of $16.2 trillion and a deficit that has topped $1 trillion a year for four years running.

Debt rating agencies like Standard & Poor's and Moody's have warned that the US faces a possible downgrade this year if it does not get the deficit under control.

Until now the two parties have been split over how to correct the deficit: Republicans have insisted on spending cuts while Democrats say the focus needs to be more on raising revenues from taxes.

But in recent days the two sides have said they are willing to negotiate both tax revenue increases and paring back expenditures.

Boehner and Obama both proposed to shake up the tax system to eliminate loopholes and deductions, and Obama has signaled that he is ready to engage Republicans on the sensitive issue of "entitlement" spending on social programs like Social Security and Medicare.

"We understand that it has to be about cuts. It has to be about revenue," said Pelosi.