US House of Representatives Speaker John Boehner emerged from a meeting with fellow Republicans on Tuesday morning pledging to press forward on talks to avert the "fiscal cliff," as hope of a deal rose.
Boehner, the top Republican in the US Congress, told reporters that President Barack Obama's most recent offer on taxing the wealthy is "not there yet", but he was hopeful of an agreement.
Obama and Boehner are working to avert steep tax hikes and deep spending cuts set to begin taking effect next month. Known as the "fiscal cliff", the measures could trigger another recession if allowed to take effect.
Growing signs of a compromise in Washington pushed world shares towards a three-month high on Tuesday and weakened appetite for safe-haven bonds and the dollar.
To strike a deal, both leaders will need the support of their party's rank and file, which appears anything but certain.
Early reports indicated that Boehner emerged unscathed from Tuesday morning's meeting with his fellow House Republicans, who include a core of Tea Party fiscal conservatives opposed to tax hikes.
"They were supportive of the speaker," Republican Representative Darrell Issa told reporters.
The president on Monday made a concession, agreeing to allow the extension of low income tax rates begun during President George W Bush's administration for incomes up to $400,000 per household. He had previously insisted setting that cut-off at $250,000.
Boehner had earlier made a concession of his own, agreeing that Bush-era tax rates could be allowed to expire for the wealthiest Americans, after opposing for months tax rate increases of any kind. He proposed setting a $1 million income threshold for raising rates.
Boehner said a vote on a Republican plan could come as early as this week in the House.
Some analysts expect a compromise could come at $500,000. "That still looks like a safe bet," said Greg Valliere, chief political strategist at Potomac Research Group.
TAX REVENUE
Obama also moved closer to Boehner on the proportion of a 10-year deficit reduction package that should come from increased revenue, as opposed to cuts in government spending. Obama is now willing to accept a revenue figure of $1.2 trillion, down from his previous $1.4 trillion proposal.
Boehner's latest proposal calls for $1 trillion in new tax revenue from higher tax rates and the curbing of some tax deductions taken by high-income Americans.
Some of Obama's spending savings would come from shrinking cost-of-living increases for all but the most "vulnerable" beneficiaries of the Social Security retirement programme, a source said, by using a different formula to determine the regular raises called "chained Consumer Price Index."
The "chained CPI" provision proposed by Obama was expected to upset liberal Democrats. Boehner was expected to encounter complaints from Republican aligned with the conservative Tea Party movement about the direction of the tax negotiations.
Missing from Obama's latest offer was any extension of the so-called "payroll tax holiday" that ends on January 1, bringing an immediate tax increase on wage earners.
Introduced by Obama two years ago as an economic stimulus, the tax holiday cut employees' payroll tax to 4.2% from 6.2%. Because the tax supports the Social Security programme, there have been partisan divisions over it.
Obama has offered a "fast track" process for major tax and spending reforms in the year ahead.
A Republican aide who asked not to be identified said that "conceptually" there was agreement to make permanent changes in the tax code, with some of those changes taking effect at the start of 2013 and others at the beginning of 2014.
A comprehensive cliff-avoiding agreement would immediately substitute new and more targeted spending cuts for the indiscriminate slashing of defence and non-defence programmes known as "sequestration".
Possible plans to produce cuts in spending for Medicare and Medicaid, the government health insurance programme for seniors and low-income Americans respectively, remain to be discussed.
Boehner and Obama have made headway on the politically explosive question of the president's ability to avoid constant battles over raising the nation's debt ceiling, which controls the level of borrowing by the government. Boehner is ready to give Obama a year of relative immunity from conservative strife over the debt ceiling, while Obama is pushing for two years.
A Republican aide said on Tuesday that Boehner will begin work on back-up legislation that would include his $1 million cut off while negotiations will continue with the White House on a broader tax and spending deal, the aide said.
Also likely on Tuesday is a White House media briefing which could shed more light on the work ahead.
