Magazine releases recording of senior Republican's campaign meeting

By Steve Holland and David Ingram

WASHINGTON (Reuters) - Senate Republican leader Mitch McConnell's re-election campaign said on Tuesday it has asked the FBI to investigate how a campaign strategy meeting was recorded in which ways to attack a potential rival, actress Ashley Judd, were reportedly discussed.

The magazine, Mother Jones, said it had obtained a recording of the meeting and that McConnell and his aides discussed criticizing Judd "for her past struggles with depression and her religious views."

Judd has since ruled out running against McConnell in 2014.

Mother Jones, which has a liberal slant, reported that at the February 2 meeting in Louisville, Kentucky, McConnell and his aides discussed how to attack Judd.

McConnell's campaign did not dispute the authenticity of the recording. "We've always said the Left would stop at nothing to attack Sen. McConnell, but Watergate-style tactics to bug campaign headquarters are above and beyond," the McConnell campaign statement said.

McConnell's campaign said it is working with the FBI and at the request of the FBI had notified the U.S. attorney's office in Louisville about the recordings.

"Obviously a recording device of some kind was placed in Senator McConnell's campaign office without consent. By whom and how that was accomplished presumably will be the subject of a criminal investigation," McConnell's campaign said.

Mother Jones was the magazine that obtained a recording of a fund-raising speech by Republican presidential candidate Mitt Romney last year in which Romney said 47 percent of Americans were dependent on government and unlikely to vote for him. When disclosed, the recording dealt Romney a damaging blow.

A spokeswoman for the U.S. Attorney's Office in Louisville declined to comment on the existence of an investigation. An FBI spokeswoman did not immediately respond to a request for comment.

One thing any investigation would focus on is whether any law was in fact broken. Federal law and the law in many states prohibit the intercept of oral communication, but that might not apply depending on who made the recording and how.

(Reporting by Steve Holland; Editing by Fred Barbash and Jackie Frank)

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Obama withdraws judicial nominee blocked twice by Republicans

By Joseph Ax

NEW YORK (Reuters) - The White House on Friday admitted defeat on its choice of New York lawyer Caitlin Halligan for a judgeship on a powerful appeals court, withdrawing her nomination two weeks after Senate Republicans blocked her for the second time.

President Barack Obama expressed anger that Republicans would not permit a Senate vote even as Halligan appeared to have the support of a majority of senators.

"I am deeply disappointed that even after nearly two and a half years, a minority of senators continued to block a simple up-or-down vote on her nomination," he said in a statement.

Halligan was nominated for the Court of Appeals for the District of Columbia Circuit, widely considered the second most influential U.S. court after the Supreme Court.

The court hears many regulatory cases important to businesses, and the judges on it are often considered for elevation to the high court.

Halligan wrote in a one-paragraph letter to Obama that it was a "tremendous honor" to be nominated but that "the time has come for me to respectfully ask that you withdraw my pending nomination."

Halligan, the general counsel for the Manhattan district attorney's office, did not respond to a request for comment.

In a procedure known as a filibuster, Republicans voted against ending debate on Halligan's nomination in December 2011 and again on March 6.

In both instances, a majority of the Senate voted to end debate and put her nomination to a vote, but she fell short of the 60 votes needed to defeat a filibuster. Democrats control only 55 seats, and legislators largely voted along party lines.

Senator Lisa Murkowski of Alaska was the lone Republican to vote in Halligan's favor on March 6.

Republicans said they were concerned about Halligan's legal "activism" during her time as New York's state solicitor general from 2001 to 2006.

They zeroed in on arguments she made on behalf of the state that gun manufacturers should be held accountable for violent crimes committed with weapons they had made.

Iowa Senator Chuck Grassley, the ranking Republican on the Senate Judiciary Committee, called it an example of "how activists on the far left" use courts to try to remake policy.

The National Rifle Association, a gun rights lobbying group, strongly opposed Halligan's nomination.

In a statement, Democratic Senator Patrick Leahy of Vermont, the judiciary committee chairman, said "narrow, special interests" had influenced Republicans to block Halligan's confirmation.

Halligan became the latest rallying cry for Democrats who claim Republicans have abused the filibuster to prevent Obama from filling several vacancies on the District of Columbia Circuit.

Both parties have blocked judicial nominees over the years, with Democrats moving to stymie certain nominees during the administration of George W. Bush.

Obama is the first president in 50 years who failed to make an appointment to the court during a full term. The 11-seat court has four vacancies, a situation Obama called "unacceptable" on Friday.

(Reporting by Joseph Ax; Editing by Todd Eastham)

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Republicans may use debt limit to leverage spending cuts

By Rachelle Younglai

WASHINGTON (Reuters) - House Speaker John Boehner and his fellow Republicans say they are preparing to use the next debt limit deadline to fight for further spending cuts and major changes to federal healthcare and retirement programs.

Boehner's demand that any debt cap increase be matched with commensurate budget savings sets up Republicans for another fiscal battle with the Obama administration and a possible repeat of the 2011 debt limit brawl that cost the United States its top credit rating.

"Dollar for dollar is the plan," Boehner told reporters on Thursday after the House passed a budget for next year that would cut domestic programs drastically but is not going to be approved by the Democratic-controlled Senate.

The government is on track to hit the limit on how much it can borrow around May 19. The U.S. Treasury can use emergency maneuvers so the administration can continue to pay bills such as interest on its debt.

But those measures are expected to run their course in July or August and Congress will have to raise the ceiling again or risk a damaging debt default.

In Boehner's weekly press conference, the speaker added that while he will seek cuts, he was "not going to risk the full faith and credit of the federal government."

His office later said Boehner's goal was not to default but to extract spending cuts from the administration of President Barack Obama.

Whether he and other Republicans will make good on their threat is an open question. In January, after months of saying they would block an increase in the debt limit unless Obama offered significant cuts, Republicans switched gears and extended the borrowing authority through May.

"We need to make sure that we have ... some real entitlement reform or real cuts," Representative Raul Labrador told reporters at a meeting of conservative lawmakers this week.

Without meaningful deficit reduction, "I don't think anybody here (House Republicans) will support the raising of the debt ceiling," the Idaho Republican said.

Kansas Republican Representative Tim Huelskamp, who was also at the meeting, said the debt ceiling remained the best opportunity to do something about the country's debt burden.

"This is going to be where the rubber meets the road," he told reporters.

Republicans argue that even if they fail to raise the debt limit, Congress could avoid default by instructing the Treasury to prioritize its various payments, putting bondholders first.

"We're willing to lay that out in law, to try to maybe create a statute that maybe makes it explicit," Representative Steve Scalise, the head of the largest group of House conservatives, told Reuters.

(Editing by Fred Barbash and Todd Eastham)

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Prominent Republicans back major immigration reforms

You can blame CNN all you want for its reporters feeling sorry for the now convicted rapists in the ongoing case in Steubenville, Ohio, but MSNBC, Fox News, and CNN all just outed a 16-year-rape victim to millions. Seeking to report on an emotional case for all that it's worth, apparently, all three networks ran this unedited clip from the courtroom video feed, in which one of the defendants responds to Sunday's verdict by apologizing to the Jane Doe victim by name:

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Republicans differ on flexibility on taxes with Obama

WASHINGTON (Reuters) - Senior congressional Republicans said on Sunday they see a chance for a broad deal with President Barack Obama on deficit reduction and reining in spending on vast government programs like Medicare and one senator signaled potential flexibility on taxes.

Obama, who met with lawmakers of both parties last week, has been calling for more tax increases on the wealthiest taxpayers, coupled with new spending cuts, to help curb budget deficits that have exceeded $1 trillion in each of the past four years.

House of Representatives Speaker John Boehner, the top Republican in Congress, and Obama failed to come to terms at the end of last year on an agreement to get America's fiscal house in order.

Such a deal could include spending cuts, tax reform and curbing spending on costly entitlement programs like the Social Security retirement program and the Medicare health insurance program for the elderly and disabled.

Speaking on the "Fox News Sunday" program, Senator Bob Corker, a Tennessee Republican, said: "There, by the way, is a chance on a deal. I know the president is saying the right things. And we have an opportunity over the next four to five months."

Asked on the ABC program "This Week" if prospects for a "grand bargain" were dead, Boehner said, "I don't know whether we can come to a big agreement. If we do, it'll be between the two parties on Capitol Hill. Hopefully, we can go to conference on these budgets - and hope springs eternal in my mind."

Boehner said that while the United States does not have "an immediate debt crisis" one is looming because entitlement programs are not sustainable in their current form. "They're going to go bankrupt," he said.

Asked how long the country had to solve these problems, Boehner said, "Nobody knows where this is. It could be a year or two years, three years, four years."

Obama has engaged in a couple of weeks of outreach to lawmakers - some have called it a "charm offensive" - but the prospects of a large deficit reduction deal by midyear remained unclear.

Corker underscored the importance of reform in the huge entitlement programs like Medicare.

'GOOD ENTITLEMENT REFORM'

"I think Republicans, if they saw true entitlement reform, would be glad to look at tax reform that generates additional revenue. And that doesn't mean increasing rates. That means closing loopholes. It also means arranging our tax system so that we have economic growth."

Boehner said he has "a very good relationship" with Obama, they are "trying to bridge some big differences" and that he "absolutely" trusts the president.

But Boehner said that if Obama "believes that we have to have more taxes from the American people, we're not going to get very far."

"If the president doesn't believe that the goal ought to be to balance the budget over the next 10 years ... (I'm) not sure we're going to get very far," he said.

Obama met last Wednesday with House Republicans and made little headway in persuading them to accept his demand for tax hikes as part of any deficit-reduction deal.

Republicans and Democrats in Congress last Tuesday offered up vastly different plans to slash long-term deficits.

On Thursday, a Senate bill to avert a federal government shutdown stalled under the weight of more than 100 proposed amendments as senators sought to attach pet provisions.

Senate Democratic leaders postponed further votes on the government spending legislation until Monday and said they would work over the weekend to try to whittle down the number of amendments. They had hoped to pass the measure on Thursday.

Democrat Dick Durbin of Illinois, the No. 2 Senate Democrat, said senators must pass the budget resolution "and then we're going to move to the next stage - and that is the grand bargain stage. That's what the president has tried to set up."

The added provisions in the Senate budget measure threatened to make the bill unacceptable to the Republican-controlled House, which last week passed a much less complicated version of the extension to government funding through September 30. Government agencies and programs face a broad shutdown if Congress fails to pass an extension by March 27.

(Reporting by Will Dunham and Philip Barbara; Editing by Bill Trott)

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A First? President Obama Gets Standing Ovations From House Republicans

Talk about white smoke: I am told, by Republican sources, that President Obama got standing ovations at the beginning and end of his meeting today with House Republicans on Capitol Hill - his first such meeting in four years.

There were tough questions and no breakthroughs, but a source inside the closed-door meeting called it "very cordial" and told me that virtually every House Republican who stood up to ask a question began by saying, "Thank you for coming" and "You are welcome here anytime." Some added, "We need to work together."

The biggest laugh line: The president informed the group that there was white smoke at the Vatican, and Rep. Billy Long of Missouri yelled out, "Does that mean the White House is open for tours?" Obama responded: "No, but the Vatican is."

This was Obama's first visit to Capitol Hill to meet with House Republicans in four years. He has met with them a total of four times, the most recent being at the White House 2011.

The president's message was straightforward and unsurprising. He began the meeting by saying he wanted to get things done on the budget and taxes, immigration and guns. On entitlement reform, he made it clear he was willing to push Democrats to make tough cuts but only if Republicans agreed to higher tax revenues. He also mentioned the strong bi-partisan commitment to Israel, which he will visit next week.

He was asked about eight questions, including these:

Rep. James Lankford of Oklahoma accused Obama of being too focused on defeating Republicans and asked, "Can we agree that we need to get to a balanced budget in 10 years?" The president responded by saying that domestic spending had already been cut deeply, and that balancing the budget too quickly would hurt the economy.

Rep. Candace Miller of Michigan asked about the cancellation of White House tours. The president said it was a Secret Service decision.

Rep. Steve Scalise of Louisiana asked about offshore oil drilling and the Keystone pipeline. The president said there were broad areas of agreement on energy, but that it was important to have a broader energy policy beyond fossil fuels. He said a decision on the Keystone pipeline would be coming "soon."

Rep. Dave Camp of Michigan, the chairman of the tax-writing Ways and Means Committee, asked if Obama and Republicans agreed on some entitlement reforms (specifically, means-testing for Medicare and reducing annual cost-of-living increases for Social Security), why couldn't those things be done now? The president said he would agree to those reforms only if Republicans agreed to raise tax revenues by closing loopholes, because we have to ask "everybody to sacrifice."

Rep. Peter Roskam of Illinois, who served with Obama in the Illinois state legislature, brought up the fiscal mess in Illinois and said Republicans were worried that Obama's policies would cause the same thing to happen here. Obama said the budget mess in Illinois was a bipartisan mess.

Rep. Tom Price of Georgia brought up the lack of trust between Republicans and the White House, and said the delay on the White House budget seemed politically motivated. Obama insisted the delay was not political: "I am done with campaigns," he said. "I am not running for re-election." The president hit that theme several times during the meeting.

Several of the questioners brought up the lack of trust and pointed to the fact that the president would be meeting tonight on behalf of his grassroots group Organizing for Action, raising money, as Roskam put it, "to thin our herd."

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Republicans move to avoid government shutdown

WASHINGTON (Reuters) - Congressional Republicans announced a plan on Monday to avoid a government shutdown later this month, seeking to calm the waters after months of budget fights that ended in a failure last week to halt damaging spending cuts.

Just three days into the $85 billion of automatic "sequester" cuts, Republicans in the House of Representatives turned their attention to the next fiscal deadline: the March 27 expiration of funding for government agencies and programs.

Should Congress fail to pass a new spending measure, the government will have to shut down most agencies and services - from national parks to the Federal Aviation Administration.

That would pile even more uncertainty onto the economy just as the worst effects of the sequester cuts begin to take effect in April.

After bruising encounters last year over the fiscal cliff of broad tax increases and spending cuts, and now sequestration, both Republicans and Democrats in Congress have lost some of their appetite - at least temporarily - for more confrontation and want to get through March without having to fight about how to keep government funded.

The bill gives some relief to the Defense Department, military construction and the Veterans Administration, but Democrats complained that it does not do enough to help domestic programs also hit by the sequester cuts that started Friday.

Sounding conciliatory, President Barack Obama said he was not giving up on trying to work with Republicans to reduce the deficit.

"I will continue to seek out partners on the other side of the aisle so that we can create the kind of balanced approach of spending cuts, revenues, entitlement reform that everybody knows is the right way to do things," he said at the start of a cabinet meeting.

In phone calls with lawmakers at the weekend, Obama raised anew the issue of cutting entitlements such as Medicare and Social Security as a way out of the budget cuts. Reforming the social safety net is a pet project of Republicans.

AIRPORT DELAYS

The Republican bill on Monday, authored by House Appropriations Committee Chairman Hal Rogers, would prevent a government shutdown by extending funding through the end of the fiscal year on September 30.

But it envisages keeping the automatic spending cuts in place, drawing criticism from Democrats that it only deals with a small part of Washington's budget woes.

The fiscal crisis that has been going for months took its most serious turn yet last week when the automatic spending cuts came into force on Friday night because the two parties could not agree on what to replace them with.

Hundreds of thousands of federal government employees face furloughs, although many will not begin until early April.

But Secretary of Homeland Security Janet Napolitano advised airline passengers to get to airports early because the cuts have already led to long lines at some security checkpoints.

Napolitano said delays were up between 150 percent and 200 percent at certain airports. The Customs and Border Protection agency began reducing overtime over the weekend.

"Lanes that would have previously been open due to overtime staffing were closed, further exacerbating wait times at airports with typically longer international arrival processes," the agency said.

In Chicago O'Hare International Airport's arrivals terminal, Dave Wagner, 51, of Boston and his brother John, 48, of Chicago, arrived late Monday morning on a flight from Hong Kong. It took them an hour to clear customs and the wait appeared to be growing. "It should have taken maybe 15 or 20 minutes," said Dave Wagner. "But there was only one agent for 12 lines."

The Pentagon is the government department hardest hit by sequestration. The House Republican bill gives it some respite by allowing it to shift funds to away from outdated, unwanted projects to critical, front-line activities.

"The legislation will avoid a government shutdown on March 27th, prioritize DoD and Veterans programs, and allow the Pentagon some leeway to do its best with the funding it has," Rogers said in a statement.

The Pentagon would be allowed to spend about $10 billion more on operations and maintenance than under a straight extension of previous funding that keeps money locked in unwanted accounts. This will help it maintain training and readiness and provide Republicans a way to shield the military from some of the cuts.

Accounting for the sequester cuts, the Republican bill would reduce the full-year discretionary spending levels to $982 billion, compared to $1.043 trillion previously.

But domestic programs, such as education funding and transportation security would be stuck with outdated extensions of spending authority passed 15 to 18 months ago, limiting their ability to shift funds.

"We need to have programs in there that meet compelling human need, housing, education, health care. And we also need to look at transportation," Barbara Mikulski, the Democrat who chairs the Senate Appropriations Committee, told CNN on Friday.

Republican House aides said the measure faced reduced chances of passage if additional appropriations bills for domestic programs were attached to it.

The Republicans' measure also steers some new funds to certain security efforts without increasing the overall spending cap. These include nuclear weapons modernization, FBI staffing levels and cybersecurity programs, border protection and federal prisons. It would also provide another $2 billion above the current level for embassy security after last year's attacks on a U.S. diplomatic mission in Benghazi, Libya.

(Additional reporting by Roberta Rampton and Deborah Charles in Washington and James B. Kelleher in Chicago; Editing by Tim Dobbyn)

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Obama: No "Jedi mind-meld" with Republicans

WASHINGTON (Reuters) - President Barack Obama, who said just days ago that he had no interest in playing a "blame game," spent much of a news conference on Friday pointing fingers at Republicans after last-ditch talks with congressional leaders failed to avert automatic spending cuts from kicking in later in the day.

Emerging from a nearly hour-long meeting and taking the podium in the White House briefing room, Obama displayed a combative style that has become his regular approach toward opponents since his decisive re-election victory in November.

Asked why he didn't just refuse to let congressional leaders leave the room until they had a deal, Obama told reporters: "I am not a dictator. I'm the president. So, ultimately, if (Senate Republican leader) Mitch McConnell or (Republican House of Representatives Speaker) John Boehner say, 'We need to go to catch a plane,' I can't have Secret Service block the doorway, right?"

Pressed on whether he was showing enough leadership - something Republicans say he has been lacking in the fiscal showdown - Obama mixed up his sci-fi references but made his point, nonetheless.

"I'm presenting a fair deal. The fact that they don't take it means that I should somehow do a 'Jedi mind-meld' with these folks and convince them to do what's right," he said, while offering no new ideas for resolving the bitter dispute.

Obama combined a reference to the "mind trick" sometimes used by Jedi on weak-minded adversaries in the "Star Wars" films with the "Vulcan mind meld" technique used by the "Star Trek" character Spock and others from his fictional planet Vulcan.

The president acknowledged that "this is not going to be an apocalypse" but he called the cuts "just dumb."

Obama's self-confidence - and his willingness to let things go over the edge, at least temporarily, in the latest fiscal battle - demonstrated what his aides have been saying for weeks.

He believes he's winning the public relations war and that Americans will put the lion's share of the blame on the Republicans for any economic pain and social hardship caused by failing to head off $85 billion in spending cuts due to start taking effect.

Republicans, for their part, insist Obama is exaggerating the potential impact of the cuts, but are seeking to avoid blame. McConnell, after the talks, called it "the president's across-the-board cuts" even though both sides agreed in 2011 to have these "sequestration" spending cuts go into effect if Obama and lawmakers failed to fashion another deficit-reduction plan.

But with lawmakers either heading out of town or already gone, Obama used the presidential soapbox on Friday to hammer home his points. He suggested that Republicans - who accuse him of continuing to campaign despite the election being long over - were driven, at least in part by entrenched hostility toward him still simmering after their election losses.

'PAINT HORNS ON MY HEAD'

"I recognize that it's very hard for Republican leaders to be perceived as making concessions to me," Obama said. "Sometimes, I reflect, 'Is there something else I could do to make these guys - I'm not talking about the leaders now, but maybe some of the House Republican caucus members - not paint horns on my head?'"

Obama wants Republicans to agree to eliminate tax loopholes enjoyed largely by the wealthy in order to help reduce the U.S. budget deficit. Republicans have ruled out raising taxes and want spending cuts instead.

Obama also took a shot at New York's billionaire mayor, Michael Bloomberg, who endorsed the president in the 2012 election. Bloomberg, during a visit to the White House on Wednesday, suggested to reporters that the administration was hyping the warnings of dire consequences from sequestration.

Responding to that, Obama said the Defense Department was trying to figure out how to continue funding schools for the children of military families. He also said Border Patrol agents "out there in the hot sun" were facing a 10 percent pay cut.

"I don't think they feel like this is an exaggerated impact. So I guess it depends on where you sit," he said.

Obama's sci-fi reference caused a stir on the Internet.

His mashing-together of the Vulcan "mind meld" and the Jedi "mind trick" went viral, drawing an avalanche of commentary on Twitter from "Trekkies" and "Star Wars" fans eager to point out the mistake.

The White House, known for its use of social media, wasted little time joining in the fun. "We must bring balance to the Force," it tweeted along with a photo of a gesturing Obama. "To deny the facts would be illogical." "The Force" was a "Star Wars" reference, while Spock often called things illogical.

Leonard Nimoy, the actor who played Spock, weighed in on Twitter, saying: "Only a Vulcan mind meld will help with this congress."

(Additional Reporting by Roberta Rampton and Steve Holland; Editing by Will Dunham)

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White House, Republicans dig in ahead of budget talks

WASHINGTON (Reuters) - Positions hardened on Wednesday between President Barack Obama and Republican congressional leaders over the budget crisis even as they arranged to hold last-ditch talks to prevent harsh automatic spending cuts beginning this week.

Looking resigned to the $85 billion in "sequestration" cuts starting on Friday, government agencies began reducing costs and spelling out to employees how furloughs will work.

Expectations were low that a White House meeting on Friday between Obama and congressional leaders, including Republican foes, would produce any deal to avoid the cuts.

Public services across the country - from air traffic control to food safety inspections and education - might be disrupted if the cuts go ahead.

Put into law in 2011 as part of an earlier fiscal crisis, sequestration is unloved by both parties because of the economic pain it will cause, but the politicians cannot agree how to stop it.

A deal in Congress on less drastic spending cuts, perhaps with tax increases too, is needed by Friday to halt the sequestration reductions, which are split between social programs cherished by Democrats and defense spending championed by Republicans.

Obama stuck by his demand that Republicans accept tax increases in the form of eliminating tax loopholes enjoyed mostly by the wealthy as part of a balanced approach to avoiding sequestration.

"There is no alternative in the president's mind to balance," White House spokesman Jay Carney told reporters.

Obama wants to end tax breaks for oil and gas companies and the lower "carried interest" tax rate enjoyed by hedge funds.

But Republicans who reluctantly agreed to raise income tax rates on the rich to avert the "fiscal cliff" crisis in December are in no mood for that.

"One thing Americans simply will not accept is another tax increase to replace spending reductions we already agreed to," said Senate Republican leader Mitch McConnell.

In one of the first concrete effects of the cuts, the administration took the unusual step of freeing several hundred detained illegal immigrants because of the cost of holding them.

Republicans described that move by Immigration and Customs Enforcement (ICE) as a political stunt aimed at scaring them into agreeing to end the sequestration on Obama's terms.

The issue looked like it might become more controversial on Wednesday when The Associated Press reported that the Homeland Security Department official in charge of immigration enforcement and removal had announced his resignation on Tuesday just after news of the immigrants' releases came out.

But ICE said the report was "misleading." The official, Gary Mead, told ICE weeks ago of his retirement in April after 40 years of federal service, a spokeswoman said. Earlier, Carney denied the White House had ordered the immigrants' release.

Friday's White House meeting will include McConnell and the other key congressional leaders: Senate Democratic leader Harry Reid, House of Representatives Democratic leader Nancy Pelosi, and House Speaker John Boehner, the top U.S. Republican.

'BELATED FARCE'?

The chances of success were not high.

One congressional Republican aide criticized the White House for calling the meeting for the day the cuts were coming into effect. "Either someone needs to buy the White House a calendar, or this is just a - belated - farce. They ought to at least pretend to try."

Unlike during other fiscal fights in Congress, the stock market is taking the sequestration impasse calmly.

U.S. stocks rose, with major indexes posting their best daily gains since early January, as Federal Reserve Chairman Ben Bernanke remained steadfast in supporting the Fed's stimulus policy and data pointed to economic improvement.

On Thursday, the Senate is expected to vote on competing Democratic and Republican ideas for replacing the sequestration. Both measures are expected to be defeated.

The Republican plan unveiled late on Wednesday would let the sequestration go into effect on Friday, but require Obama to submit an alternative $85 billion spending reduction plan to Congress by March 15, thus allowing more flexibility on how the cuts would be carried out.

Congress would have until March 22 to reject the proposal, in which case the original sequestration would remain in place. Democrats were still studying it. But on Tuesday, Senate Majority Leader Harry Reid said new revenues needed to be part of any substitute plan.

The Democratic proposal would replace the across-the-board cuts mainly with tax increases on the rich coupled with spending cuts. Some of those would be achieved by eliminating crop subsidies for large agricultural companies. More savings would be through minor defense cuts in later years.

Republicans have vowed to block any tax increases for deficit reduction.

Bernanke said sequestration was too drastic an approach for reducing the budget deficit.

"What I am advising is a more gradual approach. I'm not saying we should ignore the deficit. I am not saying we shouldn't deal with long-term fiscal issues, but I think that from the perspective of our recovery, a more gradual approach would be constructive," he told a House Financial Services Committee hearing.

Among many warnings from the Obama administration of possible damage to public services, the Air Force said its Thunderbirds exhibition flying team is expected to be grounded if sequestration happens.

The Pentagon will put most of its 800,000 civilian employees on unpaid leave for 22 days, slash ship and aircraft maintenance and curtail training.

But the full weight of sequestration will take place over seven months, allowing Obama and the Republicans time to work out a deal after the cuts begin this week.

White House spokesman Carney said sequestration would officially start just before midnight on Friday night if no deal were reached.

Government agencies began to tell employees how sequestration will force them to take furloughs. The Environmental Protection Agency acting head, Bob Perciasepe, told employees in an email that the agency did not know how much of its budget will be cut but it was working on an estimate of 5 percent.

"What might that mean for our employees? If the sequester order requires a 5.0% cut, the impact could be up to 13 furlough days," he said. That would likely mean four furlough days by June 1, he said.

(Additional reporting by Mark Felsenthal, Rick Cowan and Valerie Volcovici; Writing by Alistair Bell; Editing by Tim Dobbyn and Lisa Shumaker)

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