WASHINGTON - President Barack Obama on Friday signalled willingness to compromise with Republicans, declaring he was not "wedded to every detail" of his approach to prevent a looming set of automatic tax hikes and budgets cuts that threaten to erase millions of jobs and push the U.S. back into an economic recession.
But the president insisted his re-election gave him a mandate to raise taxes on wealthier Americans.
The changes, widely characterized as a dangerous "fiscal cliff" set to kick in Jan. 1, include a series of expiring tax cuts that were approved in the George W. Bush administration. The other half of the problem is a set of punitive across-the-board spending cuts, looming only because partisan panel of lawmakers failed to reach a debt deal.
Put together, they could mean the loss of roughly 3 million jobs.
"The majority of Americans agree with my approach," said Obama, brimming with apparent confidence in his first White House statement since securing a second term.
Trouble is, the Republicans who run the House plainly do not agree with his plans. Speaker John Boehner insisted that raising tax rates as Obama wants "will destroy jobs in America."
So began the "fiscal cliff" political manoeuvring that will determine which elected power centre — the White House or the House — bends more on its promises to voters.
An exhausting presidential race barely history, Washington was back quickly to governing on deadline, with agreement on a crucial goal but divisions on how to get there.
Obama invited the top four leaders of Congress to the White House next week for talks, right before he departs on a trip to Asia.
World stocks mostly fell Friday as fears persisted over the "fiscal cliff" that's seen as a big threat to the economic recovery.
By midafternoon in Europe, Britain's FTSE 100 index of leading companies was down 0.5 per cent at 5,749.88 while Germany's DAX was 1.2 per cent lower at 7,120.13. The CAC-40 in France slipped 0.3 per cent to 3,397.53.
On Wall Street, stocks managed a small rally. The Dow was up about 30 points when Boehner started talking and about 80 points shortly after.
Then Obama said he would not accept any approach to federal deficit reduction that doesn't ask the wealthy to pay more in taxes. A spokesman later said Obama would veto legislation extending tax cuts for families making $250,000 or more.
The Dow began sliding just before Obama spoke, at 1 p.m., and had lost its gain for the day by 1:30.
The CBO analysis says the looming combination of automatic tax increases and spending cuts would cut the massive U.S. deficit by $503 billion through next September, but that the fiscal austerity would cause the economy to shrink by 0.5 per cent next year and cost millions of jobs.
The new study estimates that the nation's gross domestic product would grow by 2.2 per cent next year if all Bush-era tax rates were extended and would expand by almost 3 per cent if Obama's 2-percentage-point payroll tax cut and current jobless benefits for the long-term unemployed were extended as well.
About 60 per cent of voters said in exit polls Tuesday that taxes should increase, either for everyone or those making over $250,000. Left unsaid by Obama was that even more voters opposed raising taxes to help cut the deficit.
Since the election, Boehner and Obama have both responded to the reality that they need each other.
Compromise has become mandatory if the two leaders are to avoid economic harm and the wrath of a public sick of government dysfunction.
Obama says he is willing to talk about changes to government funded medical insurance for the poor and elderly, earning him the ire of the left. Boehner says he will accept raising tax revenue and not just slashing spending, although he insists it must be done by reworking the tax code, not raising rates. The framework, at least, is there for a broad deal on taxes.
Yet the top Democrat and Republican in the nation are trying to put the squeeze on each other as the public waits for answers.
"This is his opportunity to lead," Boehner said of Obama, not long before the president said: "All we need is action from the House."
Obama said the uncertainty now spooking investors and employers will be shrunk if Congress extends — quickly — the tax cuts for all those except the wealthiest.
The Senate has passed such a bill. The House showed no interest on Friday in Obama's idea.
Obama and Republicans have tangled over the Bush tax cuts for years. The president gave in to Republican demands to extend the cuts across the board in 2010, but he ran for re-election on a pledge to allow the rates to increase on families making more than $250,000 a year.
Also lurking is the expiration of the nation's debt limit in the coming weeks. The last fight on that nearly led the United States to default on its bills.
When asked if he would try to use that issue as leverage, Boehner said it must be addressed "sooner rather than later."
The national debt now stands above $16 trillion. The government borrowed about 31 cents of every dollar it spent in 2012.
Associated Press writers Ben Feller, Andrew Taylor, Donna Cassata, Julie Pace, Matthew Daly, Jim Kuhnhenn and Ken Thomas contributed to this report.