Obama moves to avert fiscal cliff with new offer on tax threshold

Barack Obama has moved to head off the fiscal cliff budget crisis, tabling an offer to Republicans that involves raising taxes on those earning over $400,000, almost doubling his previous threshold of $250,000.

The outlines of a possible deal, after weeks of stalemate, took shape on a day of compromise in Washington as Obama met the Republican House Speaker, John Boehner, at the White House. According to Politico, the president sent the $400,000 offer in response to a Republican plan to set new top-rate taxes for those earning $1m or more.

The two sides are trying to hammer out an agreement ahead of a series of automatic spending cuts and tax hikes that will be imposed after 31 December unless a political solution is found. Obama won a tough election in which he stood by plans to allow taxes to rise for top earners while renewing tax cuts for the vast majority of Americans. But even after the election Republicans have fought hard against his proposals.

The Federal Reserve chairman, Ben Bernanke, warned again last week that the US could be plunged back into recession unless a compromise is reached before the year end deadline.

Over the weekend it emerged that Boehner had softened the Republicans' position on tax hikes for the rich, a key component of Obama's plan to tackle America's $16tn debt. News of Monday's meeting was enough to cheer US investors, with stock markets snapping a three-day losing streak.

Boehner reportedly proposed several major compromises, including raising taxes on those earning over $1m a year as part of a plan to raise $1tn in higher tax revenues, up from an earlier proposal of $800bn.

The Republican proposal fell far short of the $1.4tn in revenues that Obama has proposed. The new offer from Obama would reduce to $1.2tn the amount of money raised from the expiration of tax cuts brought in under President George W Bush. The movement by the president to a $400,000 threshold will appeal to Democrats from states such as California and New York where earnings are higher.

There were further signs of compromise from the Republicans. Boehner also reportedly agreed to postpone for a year negotiations over US borrowing limits, which must be agreed by February. In June 2011, the argument over raising the debt ceiling resulted in a historic credit downgrade of the US by ratings agency Standard & Poor's.

Leading Republicans and Democrats are likely to face opposition in their own ranks from any deal as more details about spending cuts and tax hikes emerge. Earlier on Monday Republicans had moved to temper reports of a breakthrough and the offer was quickly rejected by some Democrats, who argued that limiting the tax hike to millionaires was too restrictive.

The Conservative group Club for Growth also condemned Boehner's proposal. "First Speaker Boehner offered to raise tax rates after promising not to, and now he's offering to raise the debt ceiling. Raising tax rates is anti-growth and raising the debt ceiling is pro-government growth – and this is the Republican position?" said the group's president, Chris Chocola, in a statement.

Neither the White House nor the Republicans would comment on the talks. The two sides released an identical statement that read: "The president and the speaker are meeting at the White House to continue their discussions about the fiscal cliff and balanced deficit reduction."

Political analysts saw the talks as a sign of possible compromise with less than two weeks to go until the end of the year.

Sean West, a US policy analyst at Eurasia Group, a political risk consultancy, wrote in a note to clients: "The political burden is now shifted back to the president, who must be willing to take on his party in order to get a deal Boehner can ultimately pass. We do not think the president will over-reach: Obama will work with Boehner to get to a deal."

The potential breakthrough comes as polling data shows that the US public want compromise. According to the latest USA Today/Gallup poll 66% said the two sides should compromise "on their principles and beliefs" on taxes and spending to avert the year-end budget crisis.