White House says 'significant' deal on U.S. budget deficit, raising debt ceiling could be reached as Democrats push for higher taxes, Republicans refuse to consider them

WASHINGTON , June 27, 2011 () – President Barack Obama plunged into deadlocked negotiations to cut government deficits and raise the nation's debt limit as the White House expressed confidence Monday that a "significant" deal with Republicans can be reached. But both sides only seemed to harden their positions as the day wore on, with the White House insisting on some higher taxes as part of the package and the Republican leadership flatly refusing to consider them.

Obama and Vice President Joe Biden met with Senate Majority Leader Harry Reid, D-Nev., for about 30 minutes at the White House, a straightforward session that only set the stage for an evening meeting of Obama, Biden and Republican Sen. Mitch McConnell.

White House spokesman Jay Carney said Obama reported out of the morning session that "everyone in the room believes that a significant deal remains possible." But Carney affirmed that Obama will only go for a deficit-reduction plan that includes both spending cuts and increased tax revenue, a so-called "balanced" approach that Republicans say would never get through Congress based on the tax hikes.

"It's the only way to get it done if you want to do it right," Carney said.

McConnell, in a speech just hours before heading to the White House for his meeting with the president, said: "It's time Washington take the hit, not the taxpayers."

McConnell said any tax increase or new spending would be counterproductive to an economic recovery and pointed out Democrats had been unable to pass tax increases on the wealthy when they controlled both chambers of Congress last year.

"Let's move past tax hikes, talk about what's actually possible, and let's talk about what has and hasn't worked over the past two years," said the Kentucky Republican.

Reid called his session with Obama "a productive meeting."

"I hope my Republican colleagues will put the economy ahead of politics," he said on the Senate floor. "I hope they'll join us to create jobs and set aside their desire to please the tea party and defeat President Obama."

At issue is not just how to cut a staggering national debt but a showdown on the federal borrowing limit that carries enormous risks.

Absent an agreement that cuts long-term deficits, Republicans say they will not vote to increase the nation's borrowing, which will exceed its $14.3 trillion limit on Aug. 2. The administration has warned that if Congress does not raise the debt ceiling, it could mean the first U.S. financial default in history and send economic shockwaves around the world.

The president made his move to get more personally involved in the negotiations on Friday, after bipartisan talks led by Biden stalled when Republican lawmakers abandoned the negotiations, saying the issues still on the table must now be addressed by the president.

He has already met privately with House Speaker John Boehner, R-Ohio, and with House Democrats to advance the debt talks.

The White House is pushing for some tax increases on the wealthy or the elimination of tax breaks for big companies and wealthy individuals as part of a broader plan. During bipartisan negotiations led by Biden, Democrats proposed about $400 billion in additional tax revenue, including ending subsidies to oil and gas companies, an idea that has failed in the Senate.

The administration also would tax private equity or hedge fund managers at higher income tax rates instead of lower capital gains rates, change the depreciation formula on corporate jets and limit itemized deductions for wealthy taxpayers. It also has called for repealing a tax benefit for an inventory accounting practice used by many manufacturers.

But Republicans are demanding huge cuts in government spending and insisting there be no tax increases.

Carney wouldn't set a deadline for a deal, saying he didn't want to name a "token timetable." He said Obama and Vice President Joe Biden would hold additional meetings with congressional lawmakers, though there were none scheduled at this point.

Many economists and government analysts say the government needs to get control of its long-term debt by taming its deficits. The non-partisan Congressional Budget Office last week called the nation's budget outlook "daunting" and said that without major changes in policies, an aging population and rising health care costs would result in a surging federal debt.

Associated Press writers Julie Pace, Andrew Taylor and Ben Feller contributed to this story.

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