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House Republican leaders told lawmakers to return to Washington onSunday, setting the stage for a dramatic final act in this Congress toavert the year-end "fiscal cliff."

President Obama has scheduled ameeting Friday with Senate Majority Leader Harry Reid, Senate MinorityLeader Mitch McConnell, House Speaker John Boehner and House MinorityLeader Nancy Pelosi at the White House.

Reid, D-Nev., earlierThursday offered a pessimistic outlook for the chances of sending Obamalegislation before Dec. 31 to avert the budgetary collision of tax hikesand spending cuts that threaten the U.S. economic recovery.

"Nothingis happening," Reid warned in a Senate floor speech in which he putthe blame on Republicans if Washington fails to act. "If we go over thecliff, we'll be left with the knowledge that it could've been preventedwith a single vote in the Republican-controlled House ofRepresentatives," he said.

Reid wants the House to take up aSenate-passed bill to extend the current George W. Bush era tax ratesfor everyone making $250,000 or less, about 98% of earners, whichPresident Obama made a central issue of his re-election campaign.

HouseRepublicans have countered that the Senate could take up House-passedlegislation to extend all of the current tax rates, as well as aseparate piece of legislation that alters the scheduled spending cuts toprotect defense programs in order to avert the "fiscal cliff."

Boehner, R-Ohio, failed to muster enough support within his own partylast week for his alternative "Plan B" that would have allowed tax ratesto increase for those earning $1 million or more. Since then, Boehnerhas put the burden on the president and Senate Democrats to come up witha proposal that can pass a divided Congress.

House MajorityLeader Eric Cantor, R-Va., told lawmakers that the House will returnSunday and could stay in session until Jan. 2. The 113th Congress willconvene at noon on Jan. 3, scrambling the political dynamic ifWashington fails to reach an agreement before 84 new House members and12 new senators are sworn in next Thursday. Democrats will have astronger hand in the next Congress, gaining eight seats in the House andtwo seats in the Senate.

Obama phoned the top four congressionalleaders before he returned to the White House on Thursday after cuttingshort his Christmas vacation in Hawaii. It was the first sign thatcommunication between party leaders--which have been at a standstillsince last week--is restarting in the home stretch.

"Last night, I told the president that we're all happy to look atwhatever he proposes," McConnell said, "but the truth is, we're comingup against a hard deadline here, and, as I said, this is a conversationwe should have had months ago. And Republicans aren't about to write ablank check for anything Senate Democrats put forward just because wefind ourselves at the edge of the cliff."

The Senate returnedThursday. The expiration of tax rates and impending spending cuts arenot the only lingering issues Congress is trying to address.

Thecurrent 2% payroll tax holiday is scheduled to expire, as areunemployment benefits affecting 2.1 million Americans. The alternativeminimum tax (AMT) patch will also expire, which would make millions oftaxpayers vulnerable to higher tax rates. A popular package of "taxextenders" affecting businesses, individuals and charitable giving taxlaws are also scheduled to expire, as well as the "Medicare doc fix" ashort-term patch to avoid a scheduled 26.5% drop in payments tophysicians who treat Medicare patients.

The White House alsocontinues to seek an agreement as part of a "fiscal cliff" deal to liftthe debt ceiling, the nation's borrowing authority, in order to avoidanother showdown with congressional Republicans. In a Wednesday letterto Congress, Treasury Secretary Timothy Geithner said the $16.4 trilliondebt limit will be met on New Year's Eve, and that "certainextraordinary measures" will be taken to postpone congressional approvalfor an increase.

Some rank-and-file lawmakers expressed optimismthat a deal could be reached on any number of issues before the end ofthe year.

"I actually think there's still a chance to getsomething done," Rep. Tom Cole, R-Okla., told MSNBC. "You know, thesedeals usually come together at the last moment. That's what happened inthe budget deal, the debt ceiling deal. I think that's what's going tohappen again."

Asked why he was optimistic, Cole said, "Well, toparaphrase Ronald Reagan, there's so much manure around here there's gotto be a pony someplace."

Rep. John Yarmuth, D-Ky., told MSNBCthat action in the next Congress remains a possibility if gridlockcontinues. "We have a lot of new members -- 80-something new members --coming to the House. Some of them are bringing the same kind of mandatethat many of the more conservative Republicans did, but a lot of themdon't. And I think there's going to be a different kind of mentalityhere."

He added: "I think a lot of the new members who come herewant to govern rather than just campaign, and so I think things canhappen pretty quickly in January."

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