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Washington - President Barack Obama on Wednesday set a goal of cutting the US budget deficit by $4 trillion, plunging into the debate over the nation's fiscal woes after accusations he has failed to lead on the issue.
Obama, facing a 2012 re-election vote in which the nation's debt and deficit are major worries for Americans, promised in a speech in Washington to put the country on a gradually improving fiscal path.
He set a time-frame of 12 years or less to reach the goal of $4 trillion in deficit reduction and called for talks with Democratic and Republican lawmakers to hammer out a detailed blueprint.
Obama warned that steadily rising debt could cost jobs and harm the economy and force the country to borrow more from other countries such as China.
"If our creditors start worrying that we may be unable to pay back our debts, it could drive up interest rates for everyone who borrows money - making it harder for businesses to expand and hire, or families to take out a mortgage," he said. But he added: "We can solve this problem."
Obama also proposed:
- Curbing deficits to 2.5% of GDP in 2015, 2% toward the end of the decade
- Ending Bush-era tax rates for the wealthiest Americans
- Seeking $770bn in savings by 2023 in cuts to non-security discretionary spending
- Saving $480bn in Medicare and Medicaid by 2023 and at least $1 trillion more by 2033.
Obama's proposal was welcomed by bond investors. It helped lift prices for US government debt, pushing yields lower.
With the U.S. deficit expected to hit $1.65 trillion this year, Obama also proposed triggers that would force automatic, across-the-board cuts in spending if budget targets are not met by 2014.
The aim is to ensure that deficits as a share of the economy average no more than 2.8 percent of gross domestic product in the second half of the decade.
Past presidents have put in place similar "triggers".
Not going to fly
Obama's proposal came a week after Paul Ryan, House of Representatives Budget Committee chairperson, offered a blueprint for $4.4 trillion in deficit cuts.
Obama wants to draw a sharp contrast with the Ryan plan, which would combine an overhaul of the Medicare health program with lower taxes.
Even before he spoke, Republicans sought to gain the upper hand in the debate by underscoring what they said was a serious debt problem and rejecting any notion of higher taxes.
"It is time to act," said Senate Republican leader Mitch McConnell. "We don't believe a lack of revenue is part of the problem, so we will not be discussing raising taxes."
The deficit issue has become entangled with a vote Congress will consider on raising the nation's borrowing limit. Republicans say they will not vote to lift the limit without commitments to rein in long-term deficits. The debt is expected to hit the $14.3 trillion ceiling as early as mid-May and a failure to lift it could raise the specter of default.
Analyst Chris Edwards of the Cato Institute, a think tank that favors limited government, said that his initial impression of Obama's proposal was that "there's not much new" in it other than the deficit triggers. He noted the triggers could force tax increases as well as spending cuts.
"That's obviously not going to fly with the Republicans," Edwards said.
