Obama campaigns for deficit-reduction plan

President Obama on Tuesday defended his revised plan to bring federal deficits under control, while skirting any direct mention of the fact that the government he heads may soon face the prospect of a dinged credit rating.

Speaking a day after the Wall Street ratings agency Standard & Poor’s warned that the U.S. government may lose its AAA credit rating because of partisan gridlock in Washington, the president steered clear of the whole matter at a town-hall meeting in Northern Virginia, instead arguing his own deficit-reduction plan strikes the right balance for raising taxes and slowing spending.

“The debate isn’t about whether we reduce our deficit; the debate is about how we reduce our deficit,” Mr. Obama told an audience at the Annandale campus of Northern Virginia Community College.

“We need to live within our means while still investing in our future - cutting where we can while investing in education, investing in innovation, investing in infrastructure, and strengthening the safety net provided by programs like Medicare so that they’re there for this generation and [future] generations.”

The town hall was one of several events Mr. Obama hosts this week to sell his proposal to cut $4 trillion from the federal deficit over the next 12 years through a mix of tax increases and spending cuts. On Wednesday, he heads west to California and Nevada.

Spending is perhaps the foremost issue in Washington these days as lawmakers debate how to tackle the government’s massive deficit - which is expected to top $1.5 trillion this year - and national debt. After recently striking a deal on current spending levels, Democrats and Republicans have turned their attention to the fiscal 2012 budget and a fight over increasing the debt limit from $14.29 trillion so that the U.S. doesn’t default on its obligations.

Amid that backdrop, S&P’s announcement Monday that it was downgrading its outlook - keeping the nation’s gold-plated AAA rating for the moment, but threatening to change that if the U.S. doesn’t start attacking its deficits and debt - immediately became a political football.

Republicans called it proof that Congress must tie any debt-limit increase to long-term deficit-reduction measures, while Democrats and the Obama administration largely appeared to shrug it off, with a top White House economic adviser telling CNBC he doesn’t “make too much of it.”

The ratings agency explained its decision by saying the two parties are too far apart in their approaches on slashing the deficit, despite generally agreeing on a long-term goal of cutting $4 trillion, making it unlikely that any serious dent passes through Congress - especially with a presidential election looming next year.

A downgrade of the country’s AAA rating could have dire consequences on U.S. and world financial markets and undermine the dollar’s status as the global reserve currency. Like a hit to someone’s personal credit rating, it would make financing future deficits and servicing the nation’s mountain of existing debt more difficult and/or more expensive.

Nevertheless, Mr. Obama avoided the issue in his 58-minute town hall Tuesday, drawing fire from critics who say he doesn’t take the threat seriously.

“It’s notable that the president all but ignored Standard & Poor’s warning about the severity of our fiscal crisis when they downgraded their outlook for the U.S. economy, based on the president’s own runaway spending,” said Kirsten Kukowski, a spokeswoman for the Republican National Committee. “Americans recognize this is serious business, but the White House fails to understand that it was their own political brinksmanship last week that is moving us in this direction.”

Austan Goolsbee, the chairman of Mr. Obama’s Council of Economic Advisers, described the S&P outlook a “political judgment” in a CNBC interview, noting that the president has tapped Vice President Joseph R. Biden to head bipartisan deficit talks starting in May.

Some Democrats directly took on the Wall Street ratings agency, saying it had assured investors that home-mortgage-based securities were sound before their collapse crashed Wall Street and put the economy in a tailspin.

“No nation, agency or organization has the authority to dictate terms to the United States government,” said Rep. Dennis J. Kucinich, Ohio Democrat. “S&P and its compatriot, Moody’s, were a direct cause of the near-collapse of the economy of the United States.”