Obama to lay out deficit plan with focus on tax, spending

President Barack Obama on Wednesday will propose tax reform, defense savings and changes in government healthcare spending as criticism swells over his leadership on curbing a bloated budget deficit.

Obama, accused of laying low on an issue polls show will be a major factor in the 2012 presidential election, will explain his vision for tackling the long-term U.S. deficit and debt in a speech in Washington at 1:35 p.m..

“The president will lay out four steps to achieve this balanced approach,” a White House official said, citing defense budget savings, waste from healthcare, domestic spending control, and “tax reform that reduces spending in our tax code” — a reference to closing tax loopholes.

Obama will try to use the speech to regain control of the spending debate by drawing a sharp contrast with a Republican proposal unveiled last week to lower the deficit by $4.4 trillion over the next 10 years.

That proposal calls for steep cuts in spending and lower taxes for businesses and individuals.

“This is an opportunity to use the bully pulpit to frame the choice rather than let the debate run away from them,” said Chris Van Hollen, the top Democrat on the House of Representatives’ Budget Committee.

The White House, which also wants Congress to raise the country’s borrowing limit before a $14.3 trillion debt ceiling is reached as early as mid-May, says the Republican deficit plan unfairly favors the rich over ordinary Americans.

“What is not acceptable … is a plan that achieves serious deficit reduction only by asking for sacrifice from the middle class … while providing substantial tax cuts to the very well-off,” White House press secretary Jay Carney said on Tuesday.

The International Monetary Fund urged the United States on Tuesday to outline credible measures to reduce deficits.

Obama’s budget proposal for next year already includes allowing Bush-era tax cuts to expire for American families making more than $250,000 a year.

He reluctantly agreed to extend those tax breaks for two years in a compromise with Republicans in December to preserve tax cuts for less well-off families, as well as jobless aid and other benefits that he favored.

But Republican House Speaker John Boehner said in a statement on Tuesday that “tax increases are unacceptable and a nonstarter. We don’t have deficits because Americans are taxed too little, we have deficits because Washington spends too much.”

DEBT LIMIT

The White House says reducing the deficit must be a shared sacrifice that includes finding savings from spending as well as increased revenue from taxes.

“The president will make clear that while we all share the goal of reducing our deficit and putting our nation back on a fiscally responsible path, his vision is one where we can live within our means without putting burdens on the middle class and seniors,” the White House official said.

Republicans have seized on references to the reform of entitlement spending as an admission that Obama had reversed course on cutting programs held sacred by Democrats, but they remained skeptical he was sincere.

“Too often, it seems, Democrats in Washington claim to be interested in helping those in need, when what they really seek is to protect big government,” said Senate Republican leader Mitch McConnell.

The budget deficit is estimated to hit $1.65 trillion this year, or almost 11 percent of GDP, while U.S. borrowing could reach a legal limit of $14.3 trillion by mid-May unless the ceiling is raised, potentially triggering a U.S. debt default.

Obama administration officials warn that failing to lift the debt limit could cause an “Armageddon-like” collapse in financial markets, but want the debt ceiling and spending debates to be kept separate.

Republicans say they will not vote to raise the debt limit without agreement on significant cuts in spending. Their determined stance on spending and deficits helped them defeat Obama’s fellow Democrats in the 2010 congressional elections and will be a potent message in next year’s presidential election.

Americans worry about the deficit, with two-thirds of those surveyed by Gallup last month voicing a great deal of concern.

Other surveys indicate voters who supported Obama in 2008, but did not vote for Democrats in the November congressional elections, could be persuaded to support him in 2012 if they were confident he had a plan to tackle the deficit.

“The president has the opportunity to reframe the budget debate to make it more about the Democrats’ priorities of creating jobs and long-term economic growth,” said Democratic consultant Doug Hattaway.

(Editing by Peter Cooney)

WASHINGTON (Reuters) -By Alister Bull and Caren Bohan