White House: President Obama will veto any bill extending tax cuts for those making more than $250K

The congressional budget analysis said the automatic tax increases and spending cuts would cut the deficit by $503 billion through next September but the fiscal austerity would cause the economy to shrink by 0.5 percent next year and would cost millions of jobs.

The new study estimates that the nation's gross domestic product would grow by 2.2 percent next year if all Bush-era tax rates were extended and would expand by almost 3 percent if Obama's 2 percentage point payroll tax cut and current jobless benefits for the long-term unemployed were extended as well.

All sides say that they want a deal and that now that the election is over everyone can show more flexibility than in the heat of the campaign.

On Thursday, Sen. Chuck Schumer, D-N.Y., hinted Democrats might show some flexibility on demands to increase the top income tax rate from 35 percent to 39.6 percent for upper-income earners — provided the middle class doesn't bear the burden by curbing tax breaks to pay for it.

"If you kept them at 35 it's still much harder to do, but obviously there is push and pull and there are going to be compromises," Schumer said. "The president's view, my view and the overwhelming view that we ran on, and succeeded on, and the exit polls show that the American people agreed with us on is let the rate go to 39.6 for the highest-end people."

The current assumption is that any agreement would be a multistep process that would begin this year with a down payment on the deficit and on action to stave off more than the tax increases and $109 billion in across-the-board cuts to the Pentagon budget and a variety of domestic programs next year.

The initial round is likely to set binding targets on revenue levels and spending cuts, but the details would probably be enacted next year.

While some of that heavy work would be left for next year, a raft of tough decisions would have to be made in the next six weeks. They could include the overall amount of deficit savings and achieving agreement on how much would come from revenue increases and how much would be cut from costly health care programs, the Pentagon and the day-to-day operating budgets of domestic Cabinet agencies.