US President Barack Obama speaks on fiscal policy on Wednesday at George Washington University in Washington, DC. Mandel Ngan / Agence France-Presse

WASHINGTON - US President Barack Obama on Wednesday proposed spending cuts and higher taxes on the rich to slash the US budget deficit by $4 trillion over 12 years, saying Republican plans for deeper reductions were too radical.

Accused by critics of failing to lead on the issue of a ballooning deficit, Obama tried to take the initiative in a sharply political speech that was his first since he announced last week that he was running for re-election in 2012.

The deficit, projected to hit $1.4 trillion this fiscal year, is deeply troubling many Americans.

Obama's vow to reduce the deficit boosted the dollar and US Treasuries as investors said the $4 trillion target was higher than many had expected from the president.

But defense company stocks fell after Obama promised to wring savings out of the Pentagon budget. The iShares Dow Jones US Aerospace & Defense Index Fund fell 1.6 percent.

While calling for talks with Republicans on spending cuts, Obama devoted much of his speech to attacking their plan to overhaul the government health programs Medicare and Medicaid while reducing taxes on wealthy individuals and businesses.

Obama said the Republican plan by Paul Ryan, the House of Representatives Budget Committee chairman, offered a "deeply pessimistic" view of the country's future and would change the "basic social compact".

"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," Obama said as Ryan listened in the audience at George Washington University.

Obama offered few specifics on how to curb spending. But he said he wanted to end tax breaks for the wealthiest citizens enacted under former president George W. Bush.

He also pledged to save $480 billion in Medicare and Medicaid, programs for the elderly and poor, by 2023 and, significantly, proposed a "debt fail-safe" trigger to force spending cuts if debt levels did not decline as planned.

Republicans said Obama's speech showed he was not serious about deficit reduction. They said the steps he outlined would not fix the problem and his proposed tax hikes would hurt the economy.

Obama's aides have tried to present him as a leader above partisan politics in the budget debate, but the speech was aimed at voters - both independents clamoring for spending cuts and liberal supporters who want to get rid of the Bush-era tax cuts. He needs both to be re-elected to a second term.

"He actually did what he wanted to do, which is to reframe this debate and give himself both a credible plan that won't have the left going ballistic but also gave him the running room to criticize the Ryan plan," said Norman Ornstein, a scholar at the American Enterprise Institute.

"The Republicans have captured the narrative for the last month or two months. Now he's got a plan that's credible enough to really begin to talk about two different visions."

The deficit issue has become entangled with the coming debate in Congress on raising the federal government'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 its $14.3 trillion ceiling as early as mid-May and failing to lift it could raise the specter of default.

The top Republican in the House, John Boehner, said any plan that included tax increases was a "non-starter".

"He is asking Congress to raise the debt limit to continue paying Washington's bills," Boehner said. "The American people will not stand for that unless it is accompanied by serious action to reduce our deficit. More promises, hollow targets and Washington commissions simply won't get the job done."

Reuters