Obama to offer deficit reduction plan

By John Whitesides and Susan Cornwell

WASHINGTON (Reuters) – With one budget fight behind him, President Barack Obama will offer a long-term plan for deficit reduction this week in preparation for bigger U.S. spending battles ahead, the White House said on Sunday.

Senior White House adviser David Plouffe said Obama would explore savings in defense spending and the popular Medicare and Medicaid health programs for the elderly and poor as he seeks ways to reduce the $1.4 trillion annual deficit.

The plan, which officials said would be released on Wednesday, also will revisit the issue of tax increases for the wealthy and spell out specific deficit-reduction targets and a timeline, Plouffe said.

“He’s going to be clear about the type of deficit reduction we need in terms of dollar amounts, over what period of years,” Plouffe told CNN.

The move follows Friday night’s 11th-hour spending deal between Obama, Senate Democrats and Republican leaders in the House of Representatives to avert a government shutdown with $38 billion in spending cuts for the rest of this fiscal year.

Much harder battles lie ahead as Congress takes up a budget for the 2012 fiscal year that begins in October and considers the need to raise the current $14.3 trillion limit on U.S. government borrowing authority in the next few months.

Republicans, who made big gains in November’s election with promises to cut spending and rein in government, were skeptical of Obama’s plan and his sincerity on deficit reduction.

“For the last two months we’ve had to bring this president kicking and screaming to the table to cut spending,” said Representative Eric Cantor, the No. 2 House Republican.

“In my opinion, it’s really hard to believe what this White House and the president is saying,” he told “Fox News Sunday,” describing Friday’s difficult budget deal as “only the beginning. This is the first bite of the apple.”

Plouffe said the budget agreement was the first major test of the new era of divided government since Republicans took House control in January and it showed compromise was still possible in Washington.

But Cantor and Representative Paul Ryan, head of the House Budget Committee and author of a Republican 2012 budget plan that will be debated in the House this week, said they expected another tough political fight over raising the debt ceiling.

Administration officials warn a failure to raise the debt limit could put the United States into a debt default that would risk global economic havoc, but Republicans said it must be accompanied by budget reforms or spending caps.


“There is no way that we Republicans are going to support increasing the debt limit without guaranteed steps being put in place to ensure that the spending doesn’t get out of control again,” Cantor said.

Before they get to those bigger fights, Congress this week must approve the budget deal for this fiscal year, struck with barely an hour to spare before Friday’s midnight deadline.

The deal prevented a shutdown that would have idled 800,000 federal workers, closed national parks and monuments and delayed paychecks for troops in Afghanistan and Iraq.

But it left some lawmakers on both sides of the political divide disappointed. Republican Representative Mike Pence, popular with fiscal conservative Tea Party activists, said on ABC’s “This Week” the deal was “probably not good enough.”

Representative Chris Van Hollen, the top Democrat on the House Budget Committee, said he would “reserve judgment” until he sees details but he believed the deal would pass Congress.

Plouffe said Obama, a Democrat, would not embrace Ryan’s budget plan, which would save $6 trillion over the next decade partly by cutting the government-run health programs for the poor and elderly.

He agreed, however, that those programs could be part of the long-term solution. “You’re going to have to look at Medicare and Medicaid and see what kind of savings you can get,” Plouffe said.

“In the process of sitting down and talking about our spending and our programs, if there can be a discussion about how to strengthen Social Security in the future, he’s eager to have that discussion,” he said.

Plouffe said Republican budget proposals were forcing seniors, the poor and the middle class to bear more than their share of the financial burden. “If you weren’t giving enormous tax cuts to millionaires, you wouldn’t have to do that,” he said.

Obama agreed in December to extend for two years lower tax rates for the wealthiest American families making more than $250,000 a year as part of a broad agreement with Republicans.

He said at the time he wanted to revisit the issue, but Cantor accused Obama of flip-flopping on his own tax deal.

“Right away, they are insisting we have to look at raising taxes again, all while holding up the tax agreement that was signed in December,” he said..

(Additional reporting by Alister Bull and Dave Clarke; Editing by Laura MacInnis)

Obama to offer deficit reduction plan