Obama Open to 'Modest Modifications' to Social Security, Medicare in Deficit Deal

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A middle-ground deal would trim somewhere between $1.5 and $1.7 trillion in government spending, but impose no entitlement cuts or tax elements. One roadblock with that plan is that Republicans demand that spending cuts at least match the amount of the increase of the debt ceiling, which the president says needs to be $2.4 trillion or so to get to 2013.

The fail-safe option -- conceived by Senate Minority Leader Mitch McConnell, R-Ky. -- would allow the debt ceiling to be raised by the president, with Congress voting disapprovingly three times before the 2012 election.

McConnell and Senate Majority Leader Harry Reid have been considering the creation of an independent deficit commission that would recommend cuts to be voted on in Congress. "It's not the preferred option that we have," White House spokesman Jay Carney said Thursday.

McConnell's plan does, however, provide a light at the end of the tunnel as the Aug. 2 default deadline quickly approaches and financial leaders warn of dire consequences.

Federal Reserve Chairman Ben Bernanke said this week not raising the ceiling would be disastrous. And leading U.S. credit rating agencies have warned the country's bond rating is up for review and possible downgrade. Standard & Poor's warned that there is a 50 percent chance it will downgrade the government's credit rating within three months because of the impasse.

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