Barack Obama has signalled he is open to extending the Bush-era tax cuts for the richest 2 per cent of Americans, although not to making them permanent as Republicans are demanding.

Facing the reality of dealing with a newly energised Republican party following its resounding wins in midterm elections this week, the president on Thursday invited congressional leaders from both parties to the White House this month to try to reach compromises on pressing issues such as the tax cuts.

But underlining the challenges to bipartisanship, Mitch McConnell, the Republican leader in the Senate, said the party’s top priority now was to deny Mr Obama a second term.

“The immediate focus is going to be what we need to get done during the lame-duck session,” Mr Obama said before a cabinet meeting on Thursday, referring to the legislative period between this week’s elections and the start of the new Congress in January.

The lame duck session begins on November 15, a day after Mr Obama returns from a 10-day trip to Asia.

Democrats will want to push through votes on the Bush tax cuts while they still have control of both houses of Congress, while Republicans will want to exert their new power after winning control of the House this week.

“We have to act in order to ensure that middle-class families don’t see a big tax spike because of how the Bush tax cuts had been structured. It is very important that we extend those middle-class tax provisions to hold middle-class families harmless,” Mr Obama said.

The tax cuts enacted by former president George W. Bush – which cost $3,000bn over a decade – are due to expire at the end of the year.

The White House wants to extend the cuts for families making less than $250,000 a year but not those for the top 2 per cent of earners.

Republicans want all the tax cuts extended permanently.

A compromise could see the ceiling for the middle- class tax cuts increased to those earning up to $500,000 or $1m a year. Or there could be agreement to make permanent all the cuts except for the richest, extending those just for an extra year or two while the economic recovery takes hold.

In a further signal that the president is amenable to a deal, Robert Gibbs, the White House spokesman, said the president did not believe making the top tax cuts permanent was a good idea but “he’s certainly willing to listen to both sides”.

If the parties cannot agree, all the tax cuts will automatically expire on December 31.

The issue will be top of the agenda at a meeting in the White House on November 18, to which Mr Obama invited Mr McConnell and John Boehner, the incoming Republican speaker of the House, as well as Democratic leaders Harry Reid and Nancy Pelosi.

“I want us to talk substantively about how we can move the American people’s agenda forward,” Mr Obama said. “What’s going to be critically important over the coming months is going to be creating a better working relationship between this White House and the congressional leadership that’s coming in.”

Republicans are riding high after their electoral success this week, when they won a thumping 60-plus seat majority in the House and sharply reduced the Democratic majority in the Senate.

Mr McConnell told a forum at the conservative Heritage Foundation in Washington that the election results amounted to a repudiation of the administration’s agenda.

“We can hope the president will start listening to the electorate after Tuesday’s election,” McConnell said. “But we can’t plan on it.”

He reiterated that the Republican focus now was making sure that Mr Obama was a one-term president.

“Our primary legislative goals are to repeal and replace the health spending bill, to end the bail-outs, cut spending and shrink the size and scope of government, [and] the only way to do all these things is to put someone in the White House who won’t veto any of these things,” he said.

Mr Obama on Thursday also underscored the urgency of Senate ratification of the Start treaty with Russia, which would see both countries cut their nuclear arsenals by a quarter.

Some conservative Republicans are opposed to the deal but the president said the issue was a matter of national security, rather than a partisan one.

Source: http://www.ft.com/cms/s/0/b1a84a1a-e840-11df-8995-00144feab49a.html