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U.S. Secretary of the Treasury Timothy Geithner, right, listens to Federal Reserve Chairman Ben Bernanke in Washington Nov. 13.

GARY CAMERON/Reuters

The Obama administration is digging in for a fight with Republicans over an agreement to avoid the fiscal cliff, saying the tax rates paid by the wealthiest Americans must rise.

Speaking in Washington, Treasury Secretary Timothy Geithner said President Barack Obama was "not prepared to extend upper-income tax cuts," an affront to Republican House Speaker John Boehner, who wants to increase revenue by limiting tax breaks, while leaving individual rates unchanged.

The White House's harder line increases the odds that the debate over the fiscal cliff will last well into December, if not longer. If existing law is left unchanged, more then $600-billion of tax increases and spending cuts will take effect in 2013.

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Mr. Geithner said he will push for a solution that dulls the immediate impact of those measures, but at the same time commits the government to reducing its $1-trillion (U.S.) budget deficit. He pushed back against those in Washington who advocate avoiding the cliff simply by extending tax cuts and delaying the spending cuts.

"I would discourage that," Mr. Geithner said. "That will leave all the uncertainty on the table." And, he added, "What incentive will there be to come back and do something tough?"

Mr. Geithner's remarks, his first on the fiscal cliff since the election, are a window on how the Obama administration will approach an issue that has become an obsession in financial markets. "There is every reason to believe this is a solvable problem," Mr. Geithner said.

The fiscal cliff has become the shorthand for more than $500-billion (U.S.) in tax increases and some $100-billion in spending cuts that are scheduled to take effect simultaneously in the new year. That's probably more than the U.S. fragile economic recovery can stand; the Congressional Budget Office, the International Monetary Fund and others have said going over the cliff would cause a recession.

But the direst predictions assume a complete failure to negotiate. Even if lawmakers and Mr. Obama fail to complete an agreement by Jan. 1, taxpayers only would feel the effects incrementally – and the Treasury has tricks to delay the application of the higher rates. Congress also could restore some or all of spending cuts in a new budget.

However, the longer it takes to resolve the fiscal cliff, the more anxious investors and executives will become. Stock markets fell in the days after the election, and have remained depressed, as traders worried that political gridlock would prevail in Washington as it has for the past two years. Companies are retrenching as managers wait for clearer signals on how much tax they will pay in the years ahead.

"The impacts of the potential cliff are already being felt," Brian Moynihan, chief executive of Bank of America Corp., said Tuesday at a conference in New York. "Simply put, our clients tell us they will not be aggressive in times of uncertainty," Mr. Moynihan said, according to a report by Bloomberg News.

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While there has been talk of little else in Washington since the Nov. 6 election, serious, face-to-face negotiations over the fiscal cliff only now are getting underway. Resolution, if it comes, is expected to take weeks as Democrats seek to limit changes to entitlement programs such as Medicare, and Republicans dig in against Mr. Obama's election promise to raise the tax rates paid by the richest Americans.

Lawmakers returned to the U.S. capital Tuesday from a hiatus for last week's vote, and Mr. Obama met labour leaders and other defenders of social spending at the White House. Mr. Obama was scheduled to meet the chief executives of some of the U.S.'s biggest companies Wednesday, including Honeywell International Inc.'s David Cote and Ford Motor Co.'s Alan Mulally. The president plans to hold his first direct talks with congressional leaders at the White House on Friday.

"He's standing firm on taxes, on the issue of raising taxes on the wealthiest Americans," Neera Tanden, president of the Center for American Progress, a liberal think tank, said after Tuesday's meeting with Mr. Obama, according to a report by the Associated Press.

The U.S. has recorded a budget deficit of more than $1-trillion for four consecutive years, and the country's debt now is more than 70 per cent of gross domestic product.

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