White House challenges GOP in deficit talks

WASHINGTON  President Obama challenged Republicans on Monday to take on some of their "sacred cows" as budget talks aimed at preventing an unprecedented government default focused on tax increases and Medicare reductions.

The president met separately with the Senate's Republican and Democratic leaders in what signaled the start of critical head-to-head negotiations aimed at cutting more than $2trillion from federal deficits over the coming decade.

To reach that figure, Obama is insisting that tax breaks and subsidies benefiting specific industries and individuals be eliminated — something Republicans thus far have refused to consider.

"Democrats and the administration have shown themselves willing to take on tough issues and make tough choices, and it's important that Republicans are willing to do the same, to take on some of their sacred cows," White House press secretary Jay Carney said.

Unless Republicans agree to some tax increases and Democrats agree to major reductions in Medicare, they won't produce the $2 trillion-plus in savings the GOP has demanded in exchange for a similar boost in the government's borrowing authority. The savings would accrue over 10 years; the borrowing would last only about 18 months.

Without an increase in borrowing authority, the government is projected to reach its debt limit on Aug. 2. If the Treasury Department was forced to renege on payments to contractors, taxpayers, beneficiaries or investors, it could represent a first-ever default.

For that reason, the talks between Obama and Senate Republican leader Mitch McConnell of Kentucky — as well as Obama's discussions with Republican House Speaker John Boehner — have become a high-stakes game of chicken with the full faith and credit of the government at risk.

Carney went so far as to call Republican budget proposals "immoral" because they would slash spending for the middle class, seniors and disabled while leaving tax breaks for "millionaires and billionaires."

McConnell refused to consider tax increases. In a Senate speech, he said the 35% increase over two years in the $14.3 trillion debt was caused by spending that "has spiraled completely out of control."

"The big-government policies of the past two years have to change," he said. "It's time Washington take the hit, not the taxpayers."

After meeting with Obama in the morning, however, Senate Democratic leader Harry Reid said the talks should focus on creating jobs.

"I hope my Republican colleagues will put the economy ahead of politics," Reid said. "I hope they will join us to create jobs and set aside their desire to please the Tea Party and defeat President Obama."

As the rhetoric flew, both sides acknowledged that progress towards a deal has been made. That's because a group headed by Vice President Biden found nearly $1.5 trillion in projected 10-year savings they could agree on if the major issues could be resolved.

Among the areas of potential agreement:

•A four- to five-year freeze in domestic spending subject to annual congressional approval. This would not include entitlement programs such as Medicare and Medicaid.

•Defense spending cuts, partly based on Obama's plan to reduce the number of troops serving in Afghanistan.

•Ending federal payments to farmers with net income above $250,000.

•Basing federal workers' pensions on their top five years of income, rather than three years.

•Requiring some participants in TRICARE, the military health care system, to pay more in deductibles and co-payments.

"They haven't come to grips with the big issues," says Robert Bixby, executive director of the Concord Coalition, a budget watchdog group. "The low-hanging fruit is good, but you eventually have to get to the top of the tree."