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Fiscal cliff: Is there a deal in the making?

President Obama and House Speaker John Boehner disagree about whether tax rates on the top two percent of earners should go up. The White House says, 'yes' and Republicans say, 'no'. Most Americans don't think the two sides will reach an agreement by January 1, according to a recent poll. But others are more optimistic. 

By StaffAssociated Press / December 4, 2012

This file photo shows House Speaker John Boehner speaking in Washington. House Republicans negotiating with President Barack Obama on avoiding the fiscal cliff are proposing to increase the eligibility age for Medicare and to lower cost-of-living hikes in Social Security benefits.

AP Photo/J. Scott Applewhite, File

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WASHINGTON

The White House and Republicans in Congress, despite their bluster and rhetoric over the looming "fiscal cliff," have areas of significant overlap in their competing budget proposals that could form the basis for a long-term deal that would avert what some economists call a potential catastrophe.

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The Obama administration and House of Representatives Speaker John Boehner kept up the ridicule of each other's negotiating stances on Tuesday. But beneath the tough words were the possible makings of a deal to avoid the cliff, which is a combination of expiring tax cuts and automatic, across-the-board spending cuts due to take effect in January.

Economists warn the fiscal cliff, a result of prior failures of Congress and Obama to reach a lasting deal, could plunge the U.S. economy back into recession.

The White House and Congressional Republicans disagree sharply on tax rates for the rich and spending cuts to popular benefit programs. But both sides now concede that tax revenue and reductions in entitlement spending are essential elements of any deal.

If the talks succeed, it probably will be because Boehner, the most powerful Republican in Washington, yields on raising tax rates for top earners. The White House, in turn, would likely have to bend on how to reduce spending on Medicare, the federal health care program for the elderly, and some changes in Social Security, the government pension program.

The possible makings of a deal could borrow heavily from a near-bargain last year during debt-limit negotiations.

Then, Obama was willing to reduce cost-of-living increases for federal Social Security pension beneficiaries and increase the eligibility age for Medicare, as Boehner and other top Republicans have demanded. On Tuesday, Obama did not shut the door on Republican ideas on such entitlement programs.

"I'm prepared to make some tough decisions on some of these issues," Obama said, "but I can't ask folks who are, you know, middle class seniors who are on Medicare, young people who are trying to get student loans to go to college, I can't ask them to sacrifice and not ask anything of higher income folks."

"I'm happy to entertain other ideas that the Republicans may present," he added in an interview with Bloomberg Television.

At the core, the negotiations center on three key points: whether tax rates for upper income taxpayers should go up, how deeply to cut spending on entitlements such as Medicare and how to deal with raising the government's borrowing limit early next year.

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