* Obama says he's "modestly optimistic"
* U.S. stocks indexes drop 1 percent
WASHINGTON, Dec 28 (Reuters) - President Barack Obama and
congressional leaders agreed on Friday to make a final effort to
prevent the United States from going over the "fiscal cliff,"
setting off intense bargaining over Americans' tax rates as a
New Year deadline looms.
The focus now turns to the Senate, where Harry Reid, the
Democratic majority leader, and Mitch McConnell, who heads the
Republican minority, will try to come up with a deal that can
then be approved in the Republican-controlled House of
Representatives before the end of the year.
Obama said he was "modestly optimistic" that an agreement
could be found that would prevent taxes going up for almost all
working Americans.
If things cannot be worked out in the Senate, Obama said he
wanted both chambers in Congress to vote on a plan of his that
would increase taxes only for households earning more than
$250,000 a year.
The plan would also extend unemployment insurance for about
2 million Americans and set up a framework for a larger deficit
reduction deal next year.
"The hour for immediate action is here. It is now. We're now
at the point where in just four days, every American's tax rates
are scheduled to go up by law. Every American's paycheck will
get considerably smaller. And that would be the wrong thing to
do," Obama told reporters.
He was speaking after an hour-long meeting in the White
House with the two Senate leaders plus their counterparts in the
House, Republican Speaker John Boehner and Democratic Minority
Leader Nancy Pelosi.
A total of $600 billion in tax hikes and cuts to government
spending will start kicking in on Tuesday if politicians cannot
reach a deal, which could push the U.S. economy into a
recession.
To prevent that, the two Senate leaders will plunge into
talks on Saturday that will focus mainly on the threshold for
raising income taxes on households with upper-level earnings.
They will also discuss whether the estate tax should be kept
at current low levels or allowed to rise, a Democratic aide
said.
The chances of success were unclear. Earlier talks between
Obama and Boehner collapsed last week when several dozen
anti-tax Republicans defied their leader and rejected a plan to
raise rates for those earning $1 million and above.
The Democratic aide said Boehner stuck mainly to "talking
points" in Friday's White House meeting, with the message that
the House had acted on the budget and it was now time for the
Senate to move. A core of fiscal conservatives in Boehner's
caucus opposes any tax hikes at all, and House Republicans also
want to see Obama commit to major spending cuts.
Pessimism about the fiscal cliff helped push U.S. stocks
down on Friday for a fifth straight day. The Dow Jones
industrial average dropped 158.20 points, or 1.21 percent.