—Taxes. Obama insists on increasing taxes on upper-income earners and he's proposed raising the rates paid on family income over $250,000, with a boost in the top rate from 35 percent to 39.6 percent. GOP leaders vow to block any increase in tax rates but say they could support revenue increases as part of a tax reform plan that curbs tax breaks and uses the resulting revenue to both lower rates and defray the deficit. That approach, however, is opposed by many tea party GOP conservatives who have signed a pledge to oppose any tax increase.
—Entitlements. Big benefit programs like Medicare, Social Security and the Medicaid health program for the poor—called entitlements because participation is based on eligibility criteria—are major flash points. As a condition of voting for higher revenues, Republicans are demanding fundamental entitlement reforms such as increasing the Medicare eligibility age from 65 to 67, making wealthier seniors pay more for Medicare, and a less generous inflation adjustment for Social Security. Those ideas were discussed in negotiations in the summer of 2011 but Democrats seem to be signaling a harder line now.
—War spending. Obama and Capitol Hill Democrats want to claim $1 trillion or so in savings from the drawdown of troops in Iraq and Afghanistan as budget cuts. Many Republicans see the attempt as a gimmick since the savings are occurring anyway.
—Defense budget. Some Democrats want further cuts to the Pentagon on top of a 10-year $487 billion cut taken as part of last summer's budget and debt pact. Obama, however, has not proposed further cuts and GOP budget hawks swear they would hold the line against any further attempt to squeeze the military budget.