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Obama to take direct role as debt-reduction talks deadlock; Tax increases remain at core of contention

Struggling to break a perilous deadlock, President Obama took direct control Friday of national debt-limit negotiations with both Republicans and Democrats. The White House is warning that the nation's economic stability is at stake in one of the most severe tests yet of Obama's presidency.

The key disagreement involves taxes. Democrats, including Obama, say a major deficit-reduction agreement must include tax increases or the elimination of tax breaks for big companies and wealthy individuals.

Republicans are demanding huge cuts in government spending and insisting on no tax increases.

Without 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 Aug. 2. The administration has warned that failing to raise the debt ceiling could mean the first U.S. financial default in history and send economic shock waves around the world.

Discussions led by Vice President Biden that were designed to trim about $2 trillion from long-term deficits abruptly stalled this week.

Monday morning, Obama and Biden plan to meet with Senate Majority Leader Harry Reid, D-Nev., and in the early evening the president will sit down with Senate Minority Leader Mitch McConnell, R-Ky. McConnell and House Speaker John A. Boehner, R-Ohio, have repeatedly said that no deal can include tax hikes.

On Thursday, the two Republicans who had been negotiating with Biden -- House Majority Leader Eric Cantor, R-Va., and Sen. Jon Kyl, R-Ariz. -- abandoned the talks.

Ultimately, there was only so much that those discussions would yield, and it was clear that Obama and the top leaders in Congress at some point would have to step in.

Both sides repeated their negotiating positions Friday.

"The president is willing to make tough choices, but he cannot ask the middle class and seniors to bear all the burden for deficit reduction and to sacrifice while millionaires and billionaires and special interests get off the hook," said Jay Carney, White House spokesman.

Democrats and the White House seemed ready to portray Republicans as beholden to the rich and to big oil and gas companies. The Democrats' tax proposals include ending subsidies to oil and gas companies, a proposal that has failed in the Senate. They also would set new limits on deductions for taxpayers earning more than $500,000 and would change the depreciation formula on corporate jets.

In a statement following the White House invitation to Monday's talks, McConnell said Obama needs to decide between tax increases and a bipartisan agreement. "He can't have both," McConnell said.

Obama, meanwhile, called for a joint effort by industry, universities and the federal government to help reposition the United States as a leader in cutting-edge manufacturing.

"We have not run out of stuff to make, we've just got to reinvigorate our manufacturing sector so that it leads the world the way it always has, from paper and steel and cars to new products we haven't even dreamed up yet," Obama said at Carnegie Mellon University in Pittsburgh.

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