Obama faces Republican wrath over tax plan to squeeze rich

The Democratic president yesterday vowed to veto any plan that relies solely on spending cuts to reduce deficits as he set out the key battleground which is likely to dominate next year’s election campaign.

“I will not support any plan that puts all the burden of closing our deficit on ordinary Americans,” he said. “We are not going to have a one-sided deal that hurts the folks who are most vulnerable.”

The president’s speech at the White House reflected a more aggressive defence of Democratic principles after he took a battering in two previous budget battles with Republicans that hit his approval ratings. His re-election hopes could hinge on his ability to convince voters that Republicans represent the rich, not the middle class.

His proposal would predominantly hit upper income taxpayers but would also reduce spending in mandatory benefit programs, including Medicare and Medicaid, by $580 billion. It also counts savings of $1 trillion over 10 years from the withdrawal of troops from Iraq and Afghanistan.

The deficit reduction plan represents an economic bookend to the $447 billion in tax cuts and new public works spending the president has proposed as a short-term measure to stimulate the economy and create jobs. And it gives the president a voice in a process that will be dominated by a joint congressional committee charged with recommending deficit reductions of up to $1.5 trillion.

His plan served as a sharp counterpoint to Republican lawmakers, who have insisted tax increases should play no part in taming the nation’s escalating national debt.

Responding to a complaint from Republicans about his proposed tax on the wealthy, Mr Obama said: “This is not class warfare. It’s math.”

But Senate Republican leader Mitch McConnell immediately rejected the plan. “Veto threats, a massive tax hike, phantom savings and punting on entitlement reform is not a recipe for economic or job growth-or even meaningful deficit reduction. The good news is that the Joint Committee is taking this issue far more seriously than the White House.”

Mr Obama’s proposal comes amid Democratic demands he take a tougher stance against Republicans. And while it stands little chance of passing Congress, its populist pitch is one the White House hopes the public can support.

The core of the president’s plan totals just over $2 trillion in deficit reduction over 10 years. It would let Bush-era tax cuts for upper income earners expire, limit deductions for wealthier filers and close loopholes and end some corporate tax breaks. It would cut $580 billion from mandatory programs, including $248 billion from Medicare. It also targets subsidies to farmers and benefits programs for federal employees.

Coupled with about $1 trillion in cuts already approved by Congress, overall deficit reduction would total more than $4 trillion, which economists cite as a minimum threshold to bring the nation’s debt under control.

Mr Obama was outlining his plans as the intensifying crisis in Greece continued to raise fears over debt contagion, prompting a slide in Europe’s shares, with London’s leading shares index falling more than 2 per cent.

The FTSE 100 Index closed 108.9 points lower at 5259.6 after European finance ministers pushed back a decision on releasing further bailout funds to recession-hit Greece.

Britain’s banking stocks were among the biggest casualties, as the intensifying crisis showed no signs of easing.