President Barack Obama at George Washington University, Washington DC, April 13, 2011.

President Barack Obama on Wednesday proposed $4trn in spending cuts over 12 years as he portrayed Republicans as supporters of "tax cuts for millionaires and billionaires" while demanding sacrifice from the nation's seniors, poor and the middle class.

Republicans have said they will refuse to vote for a higher debt ceiling, which now stands at $14.294trn, unless the measure includes a deficit-reduction plan.

"To meet our fiscal challenge, we will need to make reforms,'' Obama said. "We will all need to make sacrifices. But we do not have to sacrifice the America we believe in."

Republicans reaffirmed their implacable opposition to tax increases.

"If we're going to resolve our differences and do something meaningful, raising taxes will not be part of that," Speaker of Congress John Boehner said.

In California where tax increases require two-thirds support in the legislature, Governor Jerry Brown, is seeking authorization to ask California voters to extend expiring taxes to avoid more draconian budget cuts, but is facing fierce opposition from state politicians. He needs two Republican votes in the Senate and two in the Assembly to reach the two-thirds threshold.

President Obama's deficit reduction plan follows a $4.4trn total of cuts over 10 years announced by the Republicans last week. The president said on Wednesday he rejects the fundamental changes to Medicare and Medicaid, federal services for the elderly and poor, proposed by Republicans and is relying in part on tax increases on wealthy Americans.

In a 44-minute speech to an audience at George Washington University, which included Representative Paul Ryan of Wisconsin, the author of the Republican plan, Obama attacked the Republicans directly. 

“There’s nothing serious about a plan that claims to reduce the deficit by spending a trillion dollars on tax cuts for millionaires and billionaires,” he said. “There’s nothing courageous about asking for sacrifice from those who can least afford it and don’t have any clout on Capitol Hill.”

The president said his framework would seek a balanced approach to bringing down the deficit, with three dollars of spending cuts and interest savings for every one dollar from tax reform that contributes to deficit reduction. This is consistent with the bipartisan Fiscal Commission’s approach.

The IMF said this week that US general government US debt as a ratio of GDP will rise from 72% in 2011 to 86% in 2016 in the absence of big changes.

The US budget deficit for 2011 is forecast at 10.8%  --  the same level as Ireland's and the deficit would be at 6% in 2016.

The Obama plan is to bring annual deficits down to 2.5%.

Fact Sheet

Prof. Peter Morici of the University of Maryland comments: President’s Budget Speech Offers Little to Cheer
 
"President Obama’s plan to balance the budget was a brilliant political speech -- - highlighting weakness in the Republican deficit reduction proposal drafted by Congressman Paul Ryan—but it offered little new or encouraging that would correct Washington’s troubled finances.
 
Once again, President Obama blamed President Bush for the mess—citing two wars and tax cuts that were not funded—when his own political party is more culpable.
 
In 2007, the last year before the financial crisis and former Speaker Nancy Pelosi and the Democrats took control of Congress, the deficit was a quite manageable $161bn. Over the next four years, spending has increased $1.1trn and the deficit jumped to $1.6trn.
 
The President’s February budget projected the deficit would fall to $772bn by 2022. However, that forecast is dubious, because it assumes 4 percent growth over the next four years, which few economists would endorse, and cuts in Medicare payments to physicians and hospitals few political observers believe will materialize. More likely, deficits will exceed $1trn, or even $1.5trn for the next decade, without further action.
 
In his speech the President claimed to be tabling $4trn in additional cuts over twelve years, but there was little new from his February budget.
 
Mr. Obama proposed higher taxes on families earning more than $200,000 a year. While that may be good populist politics, those tax increases were already in his February budget, and presenting those as additional deficit reduction is deception not worthy of his high office.
 
As he suggested, some loopholes could be plugged in the corporate taxes; however, moderate Democrats and Republicans agree U.S. corporate taxes are too high for American companies to be competitive. Most revenue that might be found fixing abuses will eventually have to be put into lower corporate taxes for those firms bearing an unfair share of the burden.
 
Central to the fiscal mess are the rapidly growing bills for Medicaid and Medicare, and Social Security. The president suggested using huge Medicare purchases to negotiate lower drug prices, but he offered no specifics about how that is to be done.
 
For the rest of health care spending, he again asserted the regulatory panels and boards established by 2010 health care reform law would cut costs; but the jump in 2011 health insurance premiums reveals those measures are ineffective.
 
Federal and state governments pay 55 cents of every dollar Americans spend on health care, and government reimbursements, not a private market, determine most prices for health services.
 
Germany and Holland, like the United States, have systems of private insurers, and government reimbursements pay nearly 80 percent of health care costs. Yet, in those countries health care costs are about half the nearly $8,000 America spends for each citizen, because the German and Dutch governments do a better job of regulating prices.
 
Neither the President nor Congressional Republicans have explained how they are going to improve on subpar US regulatory performance and significantly lower prices for health care services. Until they do, it hard to take either party’s deficit reduction plans seriously.
 
The Republican plan - - Congressman Paul Ryan’s Path to Prosperity - - would replace federal Medicaid with block grants to the states and Medicare with vouchers to seniors to buy private insurance; but those tactics, as the President correctly asserts, would merely shift the problem of paying too much for health care services onto the backs of the poor and elderly.
 
On Social Security, the basic problems are that Americans are living much longer and retiring long before their health requires, and the ratio of retirees to working age Americans is too high and rising. Simply, the retirement age should be raised to 70 for Americans under the age of 55, and neither the President nor Congressional Republicans want to take the political heat for telling Americans the hard truth.
 
When Democrats and Republicans are willing to start seriously regulating prices for health services, and embrace a substantial and immediate increase in the retirement age, Americans will know they are serious.
 
Until then, the political speeches will continue and investors should conclude that U.S. Treasury securities are a risky long-term investment. It’s high time Standard & Poor’s and other agencies downgraded the federal governments’ AAA bond rating."

President Obama on the Nation's Debt:

Obama's Deficit Reduction Plan: