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Obama on tricky path in fiscal cliff negotiations

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WASHINGTON — President Barack Obama is kicking off budget dealings with congressional leaders with new leverage from last week's big win, but he confronts a decidedly tricky path to avoiding a market-rattling "fiscal cliff" that could imperil a still-fragile economy.

Obama's GOP rivals promise greater flexibility on new tax revenues, but Democrats face pressure from liberal interest groups urging the president to take a hard line and avoid cutting big benefit programs like Medicare and food stamps. It's up to Obama to navigate the course toward an agreement.

At issue is a one-two punch of expiring Bush-era tax reductions and across-the-board spending cuts set to hit in January as punishment for the failure of a gridlocked Congress to reach a deficit-cutting deal last year. Economists and business leaders warn the combination could send the economy back into recession, and all sides in Washington say they want to avoid going over the cliff.

Attending the meeting with Obama are the top four leaders of Congress: House Speaker John Boehner, R-Ohio, Minority Leader Nancy Pelosi, D-Calif., Senate Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky.

The White House says Obama's starting point for negotiations is his February budget plan, which combined $1.6 trillion in new revenues over the coming decade — chiefly from upper-income earners — with modest cuts to benefits programs. Obama's plan promises $4.4 trillion in deficit cuts over 10 years, but more than half of that comes by banking already accomplished cuts and questionable savings from winding down military operations in Iraq and Afghanistan.

In the run-up to the meeting, Obama has been firm that taxes are going up on upper-bracket earners, though Boehner and McConnell are adamant that his campaign promise of raising the top income tax rate on family income exceeding $250,000 a year is a nonstarter.

"When it comes to the top 2 percent, what I'm not going to do is to extend further a tax cut for folks who don't need it," Obama said at his news conference Wednesday.

Obama will press the leaders to make sure that taxes don't go up on 98 percent of American families and 97 percent of small businesses at the end of the year. The White House says Obama is willing to compromise on a deficit-reduction plan, but only if it asks for more revenues from wealthier Americans.

The bargaining landscape has shifted markedly in Obama's favor since his failed talks with Boehner in the summer of 2011 on a "grand bargain" on the budget. Then, Obama squared off against a tea party-driven House on the need to extend the government's ability to borrow to avoid a market-crunching first-ever default on its obligations.

Now, freshly re-elected, Obama is putting Republicans on notice that he's willing to mount a national campaign blaming them for holding up renewing tax cuts for all with an ultimatum about renewing tax cuts for upper-income earners.

"If you have looked closely at what the president had to say and looked closely at what I have had to say, you know, there are no barriers here to sitting down and beginning to work through this process," Boehner said Wednesday.

McConnell, however, has adopted a harsher tone.

The roadblocks to a deal may come from Obama's left flank as much as they do from his conservative GOP rivals. Liberal Democrats are adamant that the measure not touch Social Security or raise the eligibility age for Medicare. Both ideas were in the mix when Obama negotiated with Boehner last summer, but top Senate Democrat Reid insists that ideas like a lower inflation adjustment for Social Security are off the table now.

On Friday afternoon, Obama will continue his efforts to build a coalition of support for his position when he and Vice President Joe Biden meet with leaders of civil rights and other organizations. The president has already met with leaders of labor and liberal organizations as well as corporate CEOs who have backed his call for greater tax revenue.

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Associated Press writer Jim Kuhnhenn contributed to this report.

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