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Obama offers $3.6 trillion deficit plan, would up taxes

Sep 19, 2011, 5:59 p.m.
President Barack Obama talks about cutting the U.S. deficit by raising taxes, from the Rose Garden of the White House in Washington, September 19, 2011. REUTERS/Jason Reed

By Alister Bull and Caren Bohan

WASHINGTON (Reuters) - President Barack Obama laid out a $3.6 trillion plan on Monday to cut budget deficits partly by raising taxes on the rich, but Republicans rejected it as a political stunt and made clear the proposal had little chance of becoming law.

Vowing to veto any plan that relies solely on spending cuts to reduce deficits, the Democratic president's recommendations set the stage for an ideological fight with Republicans opposed to tax increases that will stretch through Election Day 2012.

"I will not support any plan that puts all the burden of closing our deficit on ordinary Americans," Obama said. "We are not going to have a one-sided deal that hurts the folks who are most vulnerable."

Obama's speech reflected a more aggressive defense of Democratic principles after he took a battering in two previous budget battles with Republicans this year, which helped drive his approval rating to new lows.

Most Americans say they are unhappy with Obama's economic leadership, and the president's re-election hopes could hinge on his ability to convince voters that Republicans represent the rich, not the middle class.

On Monday, he repeatedly said all Americans must pay their "fair share" of taxes, and he sharpened the difference between his vision for America and that of Republicans in a speech meant to regain support among core supporters who have said Obama has failed to stick to liberal principles.

Republicans have consistently opposed any measures resembling tax hikes, saying they will hurt the struggling economy by increasing the burden on job-creating businesses. Republican leaders stuck to that position on Monday, quickly rejecting Obama's plan.

"Veto threats, a massive tax hike, phantom savings, and punting on entitlement reform is not a recipe for economic or job growth," said Republican Senate leader Mitch McConnell.

John Boehner, speaker of the House of Representatives and the top Republican in Congress, said in a speech in Ohio that "class warfare" was not leadership and taxing the rich would not get the economy going again, Cincinnati media reported.

"Giving the federal government more money would be like giving a cocaine addict more cocaine," Boehner said in a speech to small business owners at the University of Cincinnati.

POLITICS, BUT A PLAN?

Analysts were skeptical Obama's plan would help America's standing with credit rating agencies such as Standard & Poor's, which last month downgraded government debt and voiced concern Washington was too divided to tackle the problem.

Obama's plan, which will be sent to the "super committee" of six Republicans and six Democrats considering deficit reduction, proposes $3.6 trillion in savings over 10 years.

Those include cuts to Medicare spending aimed mainly at healthcare providers, particularly big drug companies, prompting some hospital stocks to fall sharply on Wall Street.

But roughly half of overall savings come from higher tax revenues, under the president's proposal.

That would include allowing tax breaks for upper-income Americans to expire at the end of 2012, capping popular deductions for things like mortgage interest and charitable donations, and closing corporate tax loopholes.

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