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RENEE MONTAGNE, HOST:

This is MORNING EDITION, from NPR News. I'm Renee Montagne.

STEVE INSKEEP, HOST:

And I'm Steve Inskeep.

Not for the first time, Congress and the president return from a divisive election and immediately have work to do.

MONTAGNE: Weeks after the 2010 vote, lawmakers approved a way to avoid higher taxes, amid a weak economy.

INSKEEP: Now they face a bigger challenge: higher tax rates and budget cuts that take effect at the end of the year. Lawmakers face the challenge of avoiding this so-called fiscal cliff, while also finding ways to reduce the federal deficit, the original reason they set up this looming mess.

MONTAGNE: NPR's John Ydstie reports on the effort to start toward a deal.

JOHN YDSTIE, BYLINE: In his victory speech Tuesday night in Chicago, President Obama signaled his desire to find a compromise. He said the priorities for his second term included deficit reduction. Eighteen hours later at the Capitol, House Speaker John Boehner offered the president a tentative olive branch.

(SOUNDBITE OF SPEECH)

REPRESENTATIVE JOHN BOEHNER: Mr. President, the Republican majority here in the House stands ready to work with you, to do what's best for our country.

YDSTIE: Last year, Boenher's House Republicans steadfastly refused to raise taxes to reach the balanced, deficit-reducing budget compromise sought by the president, one that included both tax increases and spending cuts. Yesterday, Boehner suggested that had changed.

(SOUNDBITE OF SPEECH)

BOEHNER: And for the purposes of forging a bi-partisan agreement that begins to solve the problem, we're willing to accept new revenue under the right conditions. What matters is where the increased revenue comes from and what type of reform comes with it.

YDSTIE: The speaker suggested revenues that flowed from closing loopholes and lowering rates and increasing growth were what he was talking about. Representative Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, was skeptical.

REPRESENTATIVE CHRIS VAN HOLLEN: I would say to the speaker and House Republicans: Let's put your plan on the table.

YDSTIE: Van Hollen says the president has made clear he's willing to work on a compromise, but Van Hollen says he's afraid the speaker's offer is much like those made by the Republicans before.

HOLLEN: In the past, whenever they've talked about tax reform as part of a revenue-raising measure, they have simply claimed - contrary to all historical evidence - that simply reducing tax rates will generate enough economic activity to make up for the loss in revenue.

YDSTIE: In an earlier post-election comment yesterday, Speaker Boehner said that by keeping Republicans in control of the House, voters had made clear there is no mandate for raising taxes. An added barrier to tax hikes is that many Republicans have taken a pledge not to vote for tax increases.

That log-jam has some Democrats - like Congressman Peter Welch of Vermont - arguing the party should be willing to go over the fiscal cliff. That would put pressure on Republicans to make a deal by January 1st, or face the prospect of an automatic expiration of the Bush tax cuts.

REPRESENTATIVE PETER WELCH: I think the Democrats have to take advantage of the fact that there is leverage here.

YDSTIE: And Welch thinks even if no agreement is reached prior to January 1st and lawmakers wind up going over the cliff, there's a good chance they'll come up with a more comprehensive plan for long-term deficit reduction early next year.

WELCH: And if we did, my view: That would the best outcome for the economy and for the middle class.

YDSTIE: Welch says one silver lining for Republicans is that there would be no need to vote for tax increases in this process. Taxes would rise automatically as the Bush tax cuts expired on January 1st. And the subsequent long-term deal would no doubt involve a tax cut, as tax breaks for the middle-class were reinstated.

But Welch acknowledges it's risky. In fact, the Congressional Budget Office has said going over the fiscal cliff could throw the U.S. economy back into recession and raise the unemployment rate. A sharp drop in the stock market yesterday was attributed to jitters over the fiscal cliff.

John Ydstie, NPR News, Washington.

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