Obama unveils $4 trillion plan to cut deficit

Obama said Republican deficit-cutting proposals would hurt the poor while rewarding the wealthy with tax cuts [EPA]

Barack Obama, the US president, has unveiled a $4 trillion deficit-reduction programme, and slammed Republican plans for sweeping spending cuts as an attempt to fracture America’s social compact.

The US has a projected annual deficit of $1.6 trillion this year and a cumulative public debt of $14.27 trillion.

In a speech designed to address the issue ahead of his 2012 re-election battle, the president said he wanted to achieve the reduction over 12 years or less.

“The debate about budgets and deficits is about more than just numbers on a page, more than just cutting and spending,” he said.

“It’s about the kind of future we want, it’s about the kind of country we believe in.”

Speaking at George Washington University in Washington on Wednesday, he said he was borrowing recommendations from a bipartisan fiscal commission which reported last year.

Obama said he would seek to reduce the deficit by keeping domestic spending low, finding savings in the defence budget, reducing excess health care costs and reforming the tax system.

Despite calling on Democrats and Republicans to come together to secure a prosperous future for their country, he also savaged a rival budget and deficit reduction plan put forward by Republican congressman Paul Ryan which aimed to cut $4.4 trillion from  the deficit over a decade.

Obama argued that the congressman’s plan would reduce spending through sweeping expenditure cuts on health care programmes for the poor and the elderly, while rewarding the richest Americans with tax cuts.

“The fact is, their vision is less about reducing the deficit than it is about changing the basic social compact in America,” Obama said.

“There’s nothing serious about a plan that claims to reduce the deficit by spending a trillion dollars on tax cuts for millionaires and billionaires.

“There’s nothing courageous about asking for a sacrifice from those who can least afford it and don’t have any clout on Capitol Hill.”

‘Vintage Obama’

Obama met key congressional leaders ahead of the speech and Republicans immediately dug in over taxes.

Republicans are challenging the president with new boldness, after what many commentators scored as a victory in securing $39bn in new spending cuts in a last-gasp deal averting a government shutdown last week.

Before heading to the White House for the meeting with Obama, Eric Cantor, the number two Republican in the House of Representatives, slammed the president’s approach.

“This is vintage Obama. He’s been standing on the sidelines expecting the rest of us to make the tough decisions and to lead this country,” Cantor said, predicting Obama’s plan would include tax hikes.

After the meeting, John Boehner, the Republican house speaker, rolled out his party’s bottom line on taxes.

“I think the president heard us loud and clear. If we’re going to resolve our differences and do something meaningful, raising taxes will not be part of that,” he said.

But Democrats hit back that Bill Clinton, the last Democratic president, bequeathed budget surpluses to his successor George W Bush, who they say ran up debt with tax cuts for the rich and wars that were not paid for.

Financial ‘Armageddon’

The president’s political goals on Wednesday seemed two-fold: to seek leverage in a short-term row over extending the US debt ceiling, and to define the coming campaign debate over spending.

The White House is already warning of financial ‘Armageddon’ should Congress fail to raise the US borrowing limit from $14.29 trillion dollars, a  threshold it is set to exceed by May 16, or see the US default on interest payments of its debt.

Republican leaders, aware of the likely severe crisis of confidence and possible recessionary results of a failure to act, say the ceiling will be raised, but are seeking new budget cuts in return.

The White House says the issues of the debt ceiling and constraining the runaway deficit are separate, and that Republicans should not “play chicken” with the economy.

But Obama’s decision to give a speech on deficit cutting is seen as an indirect acknowledgement of Republican demands.

Over the long-term, the speech is likely to help define the dominant economy and jobs debate heading into his 2012 re-election battle, amid a palpable feeling among many Americans that the country needs to tighten its belt.