Debt ceiling talks aim at $3 trillion in cuts

@CNNMoney July 21, 2011: 6:36 PM ET

WASHINGTON (CNN) -- President Obama is continuing to pursue the most "significant deficit reduction package possible," his spokesman said Thursday, the latest indication officials are keeping a variety of options open while trying to hammer out an agreement to raise the nation's debt ceiling and avoid an unprecedented default.

The president and Vice President Biden met Thursday afternoon with Democratic leaders from the House and Senate.

Meanwhile, sources indicated the negotiations were focusing on a deal to cut $3 trillion in deficits over the next 10 years that would be accompanied by a debt ceiling increase.

According to the congressional aides, who spoke on condition of not being identified, the possible deal remains in limbo over a disagreement on whether to extend Bush-era tax cuts for families earning more than $250,000 a year. Nothing has been agreed to yet, they noted.

If Congress can't reach a deal

The possible deal would include spending cuts expected to total $1 trillion or more agreed to in earlier negotiations led by Biden, the sources said. It also would reform entitlement programs by changing the eligibility age for Medicare over time, and using a more restrictive inflation index for Social Security benefits, according to the sources.

On taxes, it would permanently extend the Bush tax cuts for families earning less than $250,000 while allowing the cuts to expire at the end of 2012 for those with income above that, the aides said. At the same time, the deal would include a commitment to reform the tax code next year, which is expected to lower all tax rates and eliminate loopholes and subsidies, the sources said.

However, House Speaker John Boehner wants the deal to make all of the Bush tax cuts permanent while keeping the commitment to tax reform, the sources said. Republicans oppose any tax hikes, and their resistance has been a major obstacle to any deal in the negotiations so far.

Some sources said the deal would work in two stages, with spending cuts and a debt ceiling increase occurring right away while entitlement reforms and tax reforms would occur later.

Earlier, White House Press Secretary Jay Carney denied a report by the New York Times that Obama and Boehner were close to reaching a deal.

"There is no deal. We are not close to a deal," Carney told reporters. "There is no progress to report."

A spokesman for Boehner's office echoed Carney, denying any reportable progress. House Majority Leader Eric Cantor told reporters he was "unaware of any deal that has been struck."

The highly contentious negotiations -- reflecting the core ideological beliefs of both parties -- have now become a race against the clock. If Congress fails to raise the $14.3 trillion limit by Aug. 2, Americans could face rising interest rates, a declining dollar and increasingly jittery financial markets, among other problems. To top of page

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