President Barack Obama will lay out a plan on Monday to cut the U.S. deficit that will raise taxes on the rich, striking a populist tone to motivate his Democratic Party base before 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 lift taxes on companies and the wealthy.
His plan, which has little chance of getting through Congress in one piece, sets up the congressional and presidential elections as an ideological battle over taxes and spending. With opinion polls showing most Americans disillusioned with his economic leadership, winning re-election may hinge on his success in painting Republicans as the party of the rich.
Republicans have consistently opposed any measures resembling tax hikes, saying they will hurt the struggling U.S. economy. "It is disappointing the president has nothing but a fresh slogan for the same job-killing small business tax hikes opposed by bipartisan majorities in Congress," said Michael Steel, a spokesman for top House Republican John Boehner.
The president's recommendations to a congressional "super committee" would deliver deficit savings of more than $3 trln over the next decade, his aides said, with roughly half of those savings coming from higher tax revenues.
"This is purely politics, aimed at Obama's demoralized base. It undoubtedly has been poll-tested, so now Obama has a populist campaign issue. There's obviously no chance this could pass (on a vote in Congress)," said Greg Valliere, chief political strategist at consultancy Potomac Research Group.
Obama will lay out his recommendations in remarks in the White House Rose Garden at 10:30 a.m. (1430 GMT).
Investors want evidence that Washington's political leaders are 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. Agencies have threatened fresh action if Washington fails to produce a credible plan for addressing long-term debt.
Obama's plan does not raise the eligibility age for Medicare recipients, something he proposed during debt ceiling negotiations with House Speaker Boehner over the summer.
Instead, he is proposing something more palatable to the left — $248 bln in Medicare savings, the bulk of which will come from reducing overpayments to health care providers.
Obama is under pressure from Democrats to defend Medicare and Medicaid, the health care program for the poor. They want to use their support for these cherished programs on the campaign trail.
"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 and Medicaid are viewed by analysts as the biggest contributors to long-term U.S. deficits, which voters see as a key issue in the election.
The U.S. budget deficit in 2011 is expected to be about $1.3 trln.
The super committee of six Democratic and six Republican lawmakers is seeking at least $1.2 trln in new budget savings over 10 years by Nov. 23. That is on top of $917 bln in 10-year savings agreed in an August deal to raise the U.S. debt limit.
BUFFETT TAX
Obama will also propose a "Buffett Rule," named after billionaire investor Warren Buffett, setting a minimum tax rate for anyone making more than $1 mln 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 spending cuts across federal agencies.
A second White House official said the package of proposals added up to over $4 trln in 10-year deficit savings when the cuts from the August debt deal were taken into account.
Obama, whose approval numbers have slumped over his handling of the economy amid 9.1% 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 bln 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 trln in savings over 10 years from changes to the tax code, and over $1 trln 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.
