HARI SREENIVASAN: The president's challenge to Republicans today on taxes sets up a new confrontation in Congress. Even before the White House news conference, Senate Minority Leader Mitch McConnell warned again that raising rates on high-income earners will have almost no effect on the deficit. But he said there is another way.
SEN. MITCH MCCONNELL R-Ky.: Republicans believe that there is a way to get additional revenue. We also believe that additional revenues should be tied to the only thing that will save the country in the long run, and that is reforming entitlements.
HARI SREENIVASAN: But the Senate's Democratic majority leader, Harry Reid, objected. He said, if talking about entitlements means Social Security, Democrats will never agree.
SEN. HARRY REID, D-Nev.: Social Security is not part of the problem. That's one of the myths the Republicans have tried to create. Social Security is sound for the next many years.
But we want to make sure that in the outer years, people are protected also, but it's not going to be part of the budget talks, as far as I'm concerned.
HARI SREENIVASAN: Congressional leaders meet with the president later this week.
Wall Street took a hit after the president's news conference. Stocks fell on worries that the partisan divide on taxes will prevent a deficit deal. The Dow Jones industrial average lost 185 points to close near 12,571. The Nasdaq fell 37 points to close under 2,847.
House Minority Leader Nancy Pelosi will run again to keep her job. There had been questions about her future after last week's election. Democrats picked up a handful of seats in the House, but failed to retake control from Republicans. Today, the 72-year-old Pelosi said fellow Democrats encouraged her to stay on.
REP. NANCY PELOSI, D-Calif.: But my colleagues made it very clear. In fact, I think they must have coordinated with each other because their message was clear: Don't even think of leaving. That was what I got over and over and over and over again. And I thought, is this a coincidence or what?
HARI SREENIVASAN: Pelosi is the only woman ever to serve as speaker of the House, but she lost that position when Republicans won a majority in 2010.
Meanwhile, newly elected independent Senator Angus King of Maine announced he will caucus with Democrats. That effectively gives them 55 votes when the new Senate convenes in January.
The U.S. commander in Afghanistan, Marine General John Allen, won a statement of support today amid questions about his relationship with a Florida woman. The military is now investigating Allen's extensive contacts with Jill Kelley, a Tampa socialite, between 2010 and this year. For now, Allen's nomination to become NATO's supreme commander in Europe has been put on hold.
But, in Australia today, U.S. Defense Secretary Leon Panetta cautioned against a rush to judgment.
DEFENSE SECRETARY LEON PANETTA: No one should leap to any conclusions here. General Allen is doing an excellent job at ISAF in leading those forces. He certainly has my continued confidence to lead our forces and to continue the fight. But his nomination has been put on hold as a prudent measure until we determine what the facts are. And we will.
HARI SREENIVASAN: At the same time, there were signs the FBI has widened the investigation that uncovered an affair between David Petraeus and his biographer, Paula Broadwell, and led Petraeus to resign as CIA director.
The Washington Post reported agents found classified files in a search of Broadwell's North Carolina home on Monday night. Petraeus has denied he passed on any such documents.
Europeans in half-a-dozen countries protested against austerity measures today. They snarled transit and in some places battled police.
We have a report narrated by Emma Murphy of Independent Television News.
EMMA MURPHY: In Rome, as across Southern Europe, they protested peacefully in the thousands. But others came prepared, willing to let the anger they feel towards austerity be displayed through violence.
In a cloud of tear gas and the echo of petrol bombs, the police became the target of protesters' anger, their shields as little protection from the rocks as their status is from the financial crisis in their country. Though on different sides in this protest, both suffer the consequence of economic decline.
In Spain, where one in four are out of work, anger and desperation, ordinary people who believe the spending cuts designed to improve their position have actually made it worse. There have been many cutbacks here, but there was no shortage of rubber bullets nor police, as time and again those feeling the hurt of austerity also felt the hurt of batons wielded against them.
"They're taking all our rights," this man says. "The banks and the other businesses, they're stealing our salaries."
And that's a sentiment shared in Greece, where women place plastic bags over their faces to highlight what they say is the suffocation of their country. It's now in its fifth year of depression, and economic output continues to shrink by around 7 percent a year.
In Portugal, despite unemployment running at 15 percent, the protests were peaceful. But their scale and their banners told of their displeasure and who they blame for it.
With 26 million now unemployed, this was a day for Europe to stand together. But it is unlikely to force a change in economic policy.
HARI SREENIVASAN: The state of California held its first auction today of greenhouse gas pollution permits. The cap-and-trade plan is a key part of the state's global warming law enacted in 2006. Under its provisions, businesses must cut emissions to a certain level or buy allowances from companies that don't need all of their allowances. The program still has to survive a court challenge.
The U.S. Air Force will change the way it selects officers and instructors who train new recruits. That follows a sexual abuse scandal at Lackland Air Force Base near San Antonio, Texas. An investigation found 23 instructors allegedly abused at least 48 female recruits. So far, five people have been convicted on charges ranging from adultery to rape.
Those are some of the day's major stories.