Obama: U.S. can't afford to extend tax cuts for rich

PARMA, Ohio (Reuters) - President Barack Obama, fighting to keep Democrats in charge of Congress, said on Wednesday the United States could not afford to extend Bush-era tax cuts for the rich and accused Republicans of being fiscally irresponsible.

On a campaign trip to Ohio roughly two months before November 2 midterm elections, Obama admitted his economic policies had not worked as quickly as hoped, but said his party and proposals were still better placed to boost the U.S. economy.

Obama's comments, laced with political rhetoric, came amid a growing verbal battle with Republicans over tax cuts for wealthy Americans enacted under former President George W. Bush and set to expire at the end of this year.

John Boehner, the Republican leader in the House of Representatives, called for a two-year freeze on all current U.S. tax rates and proposed the government cut spending for next year to 2008 levels, before the controversial federal bailouts and Obama's $814 billion stimulus plan.

Obama rejected that call but said his administration was ready to extend tax cuts for families making less than $250,000 a year.

"For any income over this amount, the tax rates would go back to what they were under President Clinton. This isn't to punish folks who are better off -- God bless them -- it is because we can't afford the $700 billion price tag," he said.

Republicans blame Obama for increasing the deficit with hundreds of billions of dollars in stimulus spending without delivering promised job growth.

The White House is seeking to use a version of the same argument against the Republicans by saying extending Bush's tax cuts would increase the deficit, too.

With the unemployment rate at 9.6 percent, Obama's Democrats are struggling to keep control of the House in the November elections and may even lose the Senate.

Boehner, who is from Ohio and would likely replace Democrat Nancy Pelosi as House speaker if Republicans win a majority, cited Peter Orszag, Obama's former budget director, who wrote in the New York Times on Tuesday that extending the tax cuts to the rich would be worth it if that led to a deal in Congress.

"If the president is serious about finally focusing on jobs, a good start would be taking the advice of his recently departed budget director and freezing all tax rates, coupled with cutting federal spending to where it was before all the bailouts, government takeovers, and 'stimulus' spending sprees," Boehner said in a statement after Obama's speech.

OBAMA VS BOEHNER

Ohio is a politically important state that often swings between supporting Democrats and Republicans.

Obama had especially harsh words for Boehner, who called recently -- during a speech in Ohio -- for the president to fire his economic team.

"When these same Republicans -- including Mr. Boehner -- were in charge, the number of earmarks and pet projects went up, not down," Obama said, referring to expensive projects called "earmarks" lawmakers add to congressional bills.

"These same Republicans turned a record surplus into a record deficit ... And when you ask them, what programs they'd actually cut, they don't have an answer. That's not fiscal responsibility. That's not a serious plan to govern."

Boehner said extending the tax cuts would give certainty to small businesses -- a key constituency both parties see as crucial to boosting the sluggish economy.

"If we're able to do this together, I think we'll show the American people that we understand what's going on in the country and we'll be able to get our economy moving again and get jobs growing in America," he said on ABC's "Good Morning America" show.

Obama said the economy had improved since he took over from his Republican predecessor but the pace was slow.

"Not everything we've done over the last two years has worked as quickly as we had hoped, and I am keenly aware that not all our policies have been popular," he said.

The White House hopes its latest policies will be winners with the public, despite dim chances Republicans will support them in Congress.

Obama proposed accelerating $200 billion in business tax write-offs, which the White House says would eventually cost $30 billion; an infrastructure spending boost of at least $50 billion; and increasing and permanently extending a research and development tax credit costing $100 billion over 10 years.

Treasury Secretary Timothy Geithner told CNBC he believed there was support in Congress for the proposals and said the country was recovering slowly from a "savage" recession.

Economists said the new plans could provide a modest burst of activity in a slow-growth economy. The risk is that they would only pull forward investments, which would do little to alter a sluggish growth trajectory and spur hiring to alleviate the 9.6 percent unemployment rate.

The White House says the eventual cost of accelerating the $200 billion in tax write-offs would be $30 billion, because businesses would eventually deduct the depreciation of their equipment, bringing the total value of the different programs to $180 billion, or more, over time.

(Additional reporting by Alister Bull and Matt Spetalnick; Writing by Jeff Mason; Editing by Jerry Norton)