Obama says deficit could jeopardize recovery

President Barack Obama walks across the South Lawn after stepping off Marine One at the White House in Washington, January 29, 2010.

WASHINGTON (Reuters) - President Barack Obama renewed his pledge on Saturday to make job creation his top priority in 2010 but said it was also critical to rein in a record budget deficit that threatened an economic recovery.

Obama used his weekly radio and Internet address to remind Americans of the various proposals he put forward in the last week to spur job growth and tame a $1.4 trillion deficit.

But before the release on Monday of his proposed budget for fiscal 2011, which begins on October 1, he put a clear emphasis on addressing the deficit problem.

"As we work to create jobs, it is critical that we rein in the budget deficits we've been accumulating for far too long -- deficits that won't just burden our children and grandchildren, but could damage our markets, drive up our interest rates, and jeopardize our recovery right now," he said.

The White House has said Obama is still committed to a promise he made last year to halve the deficit by the end of his term in 2013. The president did not refer to that pledge in his address.

He has said his next budget will include a three-year spending freeze on some domestic programs.

"We'll launch an unprecedented effort to root out waste, inefficiency, and unnecessary spending in our government, and every American will be able to see how and where we spend taxpayer dollars," Obama said.

The White House on Saturday released a list of some of the proposed changes to the budget to help save $20 billion this year. The list included eliminating the "Advanced Earned Income Tax Credit," consolidating grant programs at the Department of Education, and getting rid of a program originally meant to pay to restore land with abandoned coal mines.

A Pew Research Center study published this week showed 60 percent of those polled viewed reducing the budget deficit as a top priority for 2010, up from 53 percent in 2009.

The size of the deficit is a political hot potato in an election year, with Republicans seeking to paint Obama as a big spender and the White House countering that he inherited a $1.3 trillion deficit when he took office.

Democrats face a tough time in holding on to their majorities in both the Senate and the House of Representatives in the mid-term congressional elections in November. High unemployment, now at 10 percent, and the size of the deficit could hurt them, analysts say.

Obama welcomed new data released on Friday showing that the economy grew at an annual rate of 5.7 percent in the fourth quarter of 2009. He called it a sign of progress and evidence that his policies to stimulate the economy were working.

"But when so many people are still struggling -- when one in 10 Americans still can't find work, and millions more are working harder and longer for less -- our mission isn't just to grow the economy," he said.

"Job creation will be our number one focus in 2010. We'll put more Americans back to work rebuilding our infrastructure all across the country," he said.

Obama emphasized proposals to achieve that goal: tax credits to help small businesses hire new workers and invest in new equipment, as well as the elimination of all capital gains taxes on small business investment.

(Editing by Mohammad Zargham)