Obama stands firm on taxes in fiscal cliff showdown

Obama said he wanted to extend tax cuts set to expire at year-end for 98 percent of Americans to mitigate the impact of the cliff, an austere program aimed at slashing the deficit that could also send the economy into recession.

"Let's go ahead and lock that in. That will be good for the economy. It will be good for consumers. It will be good for businesses. It takes the edge off the fiscal cliff," Obama said.

But the president insisted any agreement could not include extending the tax breaks for the wealthiest two percent of Americans, a position most Republicans have rejected.

Obama said if the Republicans accept his plan, legislation could be passed within weeks to avert the tax increases scheduled to hit on January 1. He said he would then be ready to enter longer-term talks for a comprehensive agreement on deficit reduction next year.

"We face a clear deadline that requires us to make some big decisions on jobs, taxes and deficits by the end of the year.... As I've said before, I'm open to compromise and I'm open to new ideas," Obama said at his first press conference after being re-elected on November 6.

The Democratic president said it was crucial to reach agreement soon on extending the existing tax breaks for middle class Americans with incomes below $250,000 a year.

But he drew the line at giving that advantage to richer households.

"We should not hold the middle class hostage while we debate tax cuts for the wealthy," he said.

The fiscal cliff comprises a poison-pill law agreed by Republicans and Democrats in August 2011 that forces harsh budget cuts from January 1, and the expiration of a wide range of tax cuts originally designed as temporary measures to boost economic growth.

If both take place, economists say they could suck as much as $600 billion out of the economy next year and force it into recession.

Obama did not address the spending side of the cliff, which requires the government to slash nearly $110 billion from the deficit next year.

That could lead to temporary furloughs of government workers and the cancelation of government contracts with private companies, and also decimate parts of the US defense budget.

Obama appeared to agree with the Republican leader of the House of Representatives, Speaker John Boehner, who on Wednesday proposed the two sides carve out a short-term compromise to mitigate the worst effects of the cliff, and then open talks on long-term deficit reduction next year.

But Boehner rejected tax increases for the wealthy, proposing that the government only seeks more revenues from the rich by removing special breaks they receive in the tax code.

Obama dismissed that approach as unlikely to have much impact on the US deficit, which has topped $1 trillion a year for four straight years.

"It's very difficult to see how you make up that trillion dollars if we're serious about deficit reduction, just by closing loopholes and deductions. The math tends not to work," he said.

After Obama spoke, Boehner said he was optimistic that an agreement could be reached to avert the cliff.

"If you've look closely at what the president has had to say, if you've looked closely at what I've had to say, there are no barriers here to sitting down and beginning to work through this process."

Obama said talks next year could cover government spending, a rewrite of the tax code, and politically sensitive modifications to Social Security and Medicare programs that are the largest long-term challenges to government spending.

"We can then set up a structure whereby we're dealing with tax reform, closing deductions, closing loopholes, simplifying, dealing with entitlements," Obama said.

"And I'm ready and willing to make big commitments to make sure that we're locking in the kind of deficit reductions that stabilize our deficit, start bringing it down, start bringing down our debt."

"I want a big deal. I want a comprehensive deal," he said.