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US political leaders prepare to tackle 'fiscal cliff'

Democrats and Republicans have laid out their respective mandates in regards to America's looming "fiscal cliff," which if unresolved could create a major negative financial fallout in the US and around the world.

Fresh from his re-election victory, President Barack Obama appealed for bipartisan comprise as he returned to the White House on Wednesday. Republicans have offered a short term solution for the fiscal cliff, a package of dramatic mandatory tax increases and spending cuts that are to take effect on January 1, and could plunge the country back into recession.

Outlining his party's plan, House of Representatives Speaker John Boehner rejected Obama's demand to raise taxes for the wealthy, but agreed to talks on a fundamental reform of tax laws, social security and other social benefits.

"What we can do is avert the cliff in a manner that serves as a down payment on and a catalyst for major solutions enacted in 2013 to begin to solve the problem," Bohener said.

The looming cliff

Multiple attempts by the parties to achieve comprise over the past two years have failed, leaving the US with a package, agreed to in August 2011, that requires heavy spending cuts and tax increases starting in January 2013.

The deal would drain almost $600 million (470 million euros) from the economy, effectively sending it into another recession with rising unemployment, according to the Congressional Budget Office.

The so-called 'poison-pill' package was meant as a motivation for Democrats and Republicans to reach compromise, but that has not yet happened.

Pressure has been growing on the parties to act, with the National Association of Manufacturers saying "it will take most of the decade for economic activity and employment levels to recover from the fiscal shock," if the economy goes over the cliff.

The G20 economic powers and the International Monetary Fund said at a meeting in Mexico City last week that the cliff threatened international economic growth.

Proposing solutions

Earlier on Wednesday, Obama phoned Boehner and Democratic Senate Majority Leader Harry Reid to reinforce his commitment to bipartisanship in reducing deficits, taxes and increasing job growth.

Boehner has said only cutting loopholes and special tax code breaks, along with reforms to retirement and healthcare programs, could raise government revenue.

"Feeding the growth of the economy through higher tax rates won't help us solve the problem. Feeding the growth of the government through a better and cleaner tax code will," said Boehner.

Reid said he wanted to avoid raising tax rates except for the wealthy, and wants to see substantial measures enacted during the lame-duck legislative session before the New Year, that precedes Obama's January inauguration.

"I'm not kicking the can down the road," Reid said. "We need to solve it."

dr/jr (AFP, Reuters, AP)