By CAROL E. LEE And DAMIAN PALETTA (Wall Street Journal)
President Barack Obama will lay out his plan for reducing the nation's deficit Wednesday, belatedly entering a fight over the nation's long-term financial future. But in addition to suggesting cuts—the current focus of debate—the White House looks set to aim its firepower on a more divisive topic: taxes.
In a speech Wednesday, Mr. Obama will propose cuts to entitlement programs, including Medicare and Medicaid, and changes to Social Security, a discussion he has largely left to Democrats and Republicans in Congress. He also will call for tax increases for people making over $250,000 a year, a proposal contained in his 2012 budget, and changing parts of the tax code he thinks benefit the wealthy.
"Every corner of the federal government has to be looked at here," David Plouffe, a senior White House adviser, said Sunday in one of multiple television appearances. "Revenues are going to have to be part of this," he said, referring to tax increases.
Until now, Mr. Obama has been largely absent from the raging debate over the long-term deficit. The White House has done little with the recommendations of its own bipartisan deficit commission. And Mr. Obama's 2012 budget didn't offer many new ideas for tackling entitlement spending, among the biggest long-term drains on the federal budget.
The president stayed out of the long-term deficit debate in an apparent effort to see whether Republicans would move first in offering long-term deficit-reduction ideas—something House Budget Committee Chairman Paul Ryan did with an ambitious plan last week to trim spending now and in the future.
The White House move caught Democrats in Congress off guard, according to aides, and details of the president's proposals were sketchy. Mr. Plouffe said the president will name a dollar amount for deficit reduction, although the White House wouldn't provide specifics. Introducing taxes into the discussion has the potential to complicate the resolution of coming budget fights, specifically the need to raise the debt ceiling, a move needed to prevent the U.S. defaulting on its debt.
The administration's push comes less than two days after Mr. Obama and congressional leaders reached a deal to fund the government for the next six months that would cut $39 billion in spending. Administration officials say they have long been working on a comprehensive plan to tackle the country's debt, but waited so as not to complicate budget negotiations that almost shut down the government.
Rep. Eric Cantor of Virginia, the No. 2 Republican in the House, said in an interview that Mr. Obama had already passed up an opportunity to show seriousness about deficit reduction with his 2012 budget. "Instead of returning back to the age-old playbook of raising taxes so that spending can continue, I think maybe the White House ought to take a look at what we're talking about…which is to cut spending as well as to reform these entitlement programs."
Mr. Cantor called the debate over top personal-income-tax rates "settled" by last year's elections and the subsequent tax deal. "It was then that we all agreed it wouldn't be a good thing if we want to see job creation for taxes to go up," he said.
The plan released last week by Mr. Ryan (R., Wis.), would make permanent the tax cuts approved under President George W. Bush, close loopholes and lower tax rates. It also envisions essentially privatizing Medicare and cutting Medicaid spending by turning the program over to states to administer. The GOP plan cuts $6.2 trillion over 10 years. Mr. Obama's budget forecast a $1 trillion cut over the same period.
The cuts Mr. Obama will propose Wednesday to Medicare will differ from the Republican plan. Mr. Plouffe said only that the White House supports the Ryan provisions that preserve Medicare savings already in the health law. On Social Security, Mr. Plouffe said Mr. Obama is willing to work with Congress on a long-term plan, but offered no further details.
About a month ago, senior Democrats in Congress appealed to the White House to get involved in a separate set of bipartisan deficit-reduction talks led by a group of senators known as the Gang of Six. The Democrats wanted the White House to influence the talks before they became too focused on spending cuts. A Democrat involved in that appeal said White House help hasn't been forthcoming.
On Monday, Sens. Mark Warner (D., Va.) and Saxby Chambliss (R., Ga.), who are leading the Gang of Six effort, plan to brief 500 business leaders and others at the Rotary Club of Atlanta about their effort. The group is close to finalizing a proposal that would cut the deficit by $4 trillion over 10 years.
The White House is trying to portray Democrats as the champions of the middle class. After days of commenting little on the Ryan budget, Mr. Plouffe said there are parts of it the White House agrees with, but he rejected one element of the proposal as a $1 trillion tax break for Americans making over $250,000 a year.
In his speech Wednesday, Mr. Obama will use himself as an example to make the case for raising taxes on the wealthy, while preserving those for the middle class. "People like him, as he'll say, who've been very fortunate in life, have the ability to pay a little bit more," Mr. Plouffe said.
Eliminating the Bush tax cuts for the highest earners, however, will only put a small dent in the projected deficit.
Republicans contend that raising top rates would hurt small businesses and cut into cash that might otherwise turn into consumer spending. Mr. Ryan said on NBC's "Meet the Press" Sunday that "If you go down the tax increase path you're sacrificing the economy."
The White House will stress what Mr. Plouffe called "smart" deficit reduction, meaning a plan that avoids cuts to administration priorities such as spending on education and infrastructure.
If the tax fight reignites, the White House could be setting itself on a collision course with Republicans on the debt ceiling, a fight with more serious consequences for financial markets.
The U.S. Treasury issues debt to fund the country's obligations, including interest payments. But Congress sets the limit, or ceiling—currently at $14.294 trillion—and the country has roughly $14.2 trillion in debt outstanding. The Treasury wants the ceiling raised now, believing the country could potentially default on its debt July 8.
Many GOP lawmakers refuse to increase the ceiling under any circumstances, while others plan to use the vote as leverage to get deficit-reduction measures. Mr. Plouffe signaled the White House is open to attaching deficit-reduction measures to a bill.
—Jonathan Weisman and Janet Hook contributed to this article.