RPT-Obama deficit plan aimed at Democratic base

Mon Sep 19, 2011 7:00am EDT

* Obama to recommend deficit cuts of up to $3 trillion

* Will propose "Buffett Tax" on millionaires

By Alister Bull

WASHINGTON, Sept 19 (Reuters) - President Barack Obama will lay out a plan on Monday to cut the U.S. deficit, striking a populist tone aimed at galvanizing his Democratic Party base ahead of the November 2012 election.

Obama will vow to veto any cuts proposed for the government-run Medicare health program for the elderly unless Congress agrees to raise taxes on companies and the wealthy.

The president's recommendations to a congressional "super committee" would deliver deficit savings of more than $3 trillion over the next decade, his aides said, with roughly half of those savings coming from higher tax revenues.

Republicans, who control the U.S. House of Representatives, are firmly rejecting any tax hikes to raise revenues. Many Democrats see that as a sign for Obama to stop trying to compromise with Republicans over tackling the debt, and instead to fight for the voters who put him office.

"These things are critical to the base," said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities in Washington and a former economic adviser to Vice President Joe Biden.

Obama, under fire from Democrats to defend Medicare and Medicaid healthcare programs as he seeks to boost flagging support ahead of next year's election, will demand that all Americans share the burden of controlling the budget.

"He will veto any bill that takes one dime from the Medicare benefits seniors rely on without asking the wealthiest Americans and biggest corporations to pay their fair share," a senior administration official told reporters on Sunday.

Medicare, for elderly and disabled Americans, and Medicaid for the poor, are viewed by analysts as the biggest contributors to long-term U.S. deficits, which many voters see as a key issue in the election.

The U.S. budget deficit in 2011 is expected to be about $1.3 trillion.

The super committee of six Democratic and six Republican lawmakers is seeking at least $1.2 trillion in new budget savings over 10 years by Nov. 23. That is on top of $917 billion in 10-year savings agreed in an August deal to raise the U.S. debt limit.

Obama will lay out his recommendations in remarks in the White House Rose Garden at 10:30 a.m. (1430 GMT) on Monday.

He will also propose a "Buffett Rule," named after billionaire investor Warren Buffett, setting a minimum tax rate for anyone making more than $1 million a year.

The tax would only apply to a tiny minority of the millions of Americans who file tax returns, but White House aides said it would set a standard of fairness.

The super committee can ignore Obama's recommendations, which are an opening bid in a three-month marathon to find deficit savings that Congress must approve by a Dec. 23 deadline to avoid automatic cuts in federal spending.

Republican leaders are likely to reject them outright.

UNDER SCRUTINY

Obama's proposals were being scrutinized by politicians and the business world.

Investors want evidence that the political process in Washington is capable of tackling the towering U.S. deficit and the country's mounting debts, after ratings agency Standard & Poor's cut the U.S. AAA rating in August.

A second White House official said the package of proposals would add up to over $4 trillion in 10-year deficit savings when the cuts from a debt deal struck in August were taken into account.

Obama, whose approval numbers have slumped over his handling of the economy amid 9.1 percent unemployment and mounting fear of another U.S. recession, is fighting to regain his political footing as the election campaign heats up.

Last week he proposed a $450 billion jobs plan to spur hiring, and promised that would be paid for from some of the savings in his recommendations to the super committee.

These include $1.5 trillion in savings over 10 years from changes to the tax code, and over $1 trillion in savings from drawing down troops in Iraq and Afghanistan. Critics are likely to dispute this saving because the troops are coming home anyway and this is not a new policy proposal.

The recommendations will include cuts of $580 billion in so-called mandatory spending, including $248 billion in Medicare savings. The bulk of those savings would come from "reducing overpayments," officials said, which would hit payments to healthcare providers.

Obama's proposals left out a number of cuts to Medicare, Medicaid and Social Security that he had put on the table during summer discussions on a so-called "grand bargain' with Republicans that ultimately went nowhere.

Obama needs to steady core supporters.

"If you get into an election year and you are still trying to reassure your base, you're in a really tough spot," said William Galston, a senior fellow at The Brookings Institution in Washington. "If the president starts a big controversy about Medicare benefits (now), then that could very well be the straw that breaks the base's back," said Galston. (Editing by David Storey and Eric Beech)

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