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Obama defends U.S. deficit plan, sees common ground

By Jeff Mason and Alister Bull

WASHINGTON (Reuters) - President Barack Obama drew a sharp line on Tuesday between Republican and Democratic plans to cut the deficit, but he said a deal could be reached despite ideological differences between the two sides.

Democrats and Republicans agree that $4 trillion needs to be slashed over roughly a decade, Obama told a town hall-style event in Virginia. But the two parties disagree on what to cut to get there.

"The big question that is going to have to be resolved is: how do we do it?" Obama told students at a community college. "I don't want to lie to you, there is a big philosophical divide right now."

The president was promoting his plan for cutting the deficit a day after Standard & Poor's threatened to strip America of its prized triple-A credit rating. The Wall Street ratings agency cited concern that Washington's polarized politics would make it difficult to reach a debt deal before the 2012 presidential election.

Obama, who is traveling around the country this week to advocate his deficit proposals, did not show any greater flexibility over his demands that taxes go up for the wealthiest Americans.

His Treasury secretary, seeking to reassure investors that America would not lose its top-notch rating, took to the airwaves to dismiss S&P's action as politically tone deaf.

"Actually, I think things are better than they've been if you want to think about the prospects for improving our long-term fiscal position," Timothy Geithner told CNBC television, adding there was "no risk" the United States would lose its triple-A rating.

Obama did not directly refer to S&P's action in his comments to the Virginia student group.

How to cut the $1.4 trillion deficit has already become a major issue in the 2012 presidential and congressional campaigns, and both sides are trying to show they have the best plan.

A Washington Post poll on Tuesday showed Obama's approval ratings near record lows because of deepening economic pessimism among Americans. The survey showed 47 percent approving of his performance -- a 7-point drop since January.

Republicans oppose Obama's efforts to let Bush-era tax cuts on top earners lapse after 2012 and question the president's readiness to commit to meaningful spending cuts.

Eric Cantor, the No. 2 Republican in the U.S. House of Representatives, lambasted the president for avoiding specifics and focusing on tax increases.

"The president's plan to increase taxes is a direct assault on job creation and innovation that could throw our economy in reverse," he said in a statement.

"I'm disappointed that once again the president did not offer specifics about how to put America on a path to pay down our debt," he said.

Republicans sharply criticized Obama's plan for cutting the deficit, saying it was unveiled in a campaign-style speech aimed at voters and not at striking agreement in Congress.

Both parties claimed ammunition from the S&P warning, but members of the conservative Republican Tea Party caucus saw particular vindication for their anti-spending platform, which helped hand Republicans control of the House in last year's congressional elections.

Vice President Joe Biden will host a meeting with members of the Congress on May 5 to discuss deficit reduction.

Republicans in Congress named two top lieutenants to the Biden panel: Cantor and Jon Kyl, the No. 2 Republican in the Senate. Democrats have appointed four members to the group.

Brian Riedl, an analyst at the conservative Heritage Foundation, said an agreement that to cut $4 trillion from the deficit over 10 to 12 years was still "not even close to what we need to avert a fiscal calamity." (Additional reporting by Emily Stephenson, Kim Dixon, David Lawder, Steve Holland, and Thomas Ferraro; Editing by Doina Chiacu)

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