Obama speech could provoke fight on deficit

WASHINGTON (Reuters) - President Barack Obama will try to rise above party politics in his State of the Union speech on Tuesday, but is headed for a bitter fight with Republicans over the budget deficit and spending.

Obama's address to Congress at 9 p.m. EST (0200 GMT on Wednesday) will stress a search for common ground on efforts to boost growth and jobs, shaping a centrist message to carry into his 2012 re-election campaign.

He will call again for a spending freeze, proposing a five-year halt on increases in non-security, discretionary spending. Officials said Obama will look for cuts in other areas and put forward a Pentagon plan to cut $78 billion in defence spending over five years.

When Obama made a similar proposal last year for a three-year freeze on discretionary spending, he also asked that it be delayed for a year due to the weak economy. Discretionary spending does not cover the big ticket social spending items such as health care and Social Security.

Ahead of the speech, Republicans sought to pressure Obama over spending, seizing on an expected call for investment in targeted areas like education. Republicans say "investment" is just a Democratic code for "borrow and spend" policies.

"I'm hopeful that the president has listened to the American people," House of Representatives Speaker John Boehner said. "I'm hopeful that the word 'investment' really isn't more stimulus spending and a bigger government here in Washington."

Americans have responded positively to better bipartisan cooperation after Obama struck a deal with Republicans over tax cuts, helping lift his approval ratings in recent weeks.

Washington's often harsh tone was also tempered by efforts from both parties towards greater comity after Democratic Representative Gabrielle Giffords was wounded in a mass shooting on January 8. Six people died in the Arizona rampage.

The family of a 9-year-old girl who was among those killed has been invited to attend the address with first lady Michelle Obama, while some lawmakers plan to break the practice of sitting as a bloc with only members of their own party.

But the partisan battles are expected to heat up again.

Americans are worried about a $1.3 trillion budget deficit and rising federal debt, which will hit a statutory limit of $14.3 trillion by March 31.

The two parties differ over how to tackle these problems, with Republicans in favour of deep spending cuts and many Democrats preferring to increase taxes on wealthier Americans.

Obama is under pressure to spell out his plans.

Senior Obama adviser Valerie Jarrett said the president hopes to use the speech to convince Americans of his commitment to deficit reduction. But she said Obama also would emphasise "strategic, targeted spending that's smart" to address the more immediate priority of bolstering economic growth.

"The message that's so important is that we do have to tighten our belts," Jarrett said in an interview on ABC's "Good Morning America" program.

Seizing on the talk of targeted spending, Boehner said: "The American people know that we can't continue to borrow and spend our way to prosperity."

Eric Cantor, the No. 2 Republican in the House, said his party would outline proposed cuts the week of February 14, a time when Congress is usually focussed on the president's budget proposal.

"This is how serious we are on delivering on our commitment to cut spending," Cantor told reporters.

Republicans, who won control of the U.S. House of Representatives in the November congressional elections after campaigning for less government spending, have called for $100 billion in federal cuts.

Financial markets will watch for anything Obama says about raising the debt limit, a move that has been resisted by some Republicans but which investors see as essential for the country to avoid defaulting on its debt.

But the president is expected to emphasise broader themes, like the importance of focussing on education, innovation and infrastructure while holding down non-defence spending. The details will be in his budget next month.

CREDIBLE PLAN

Obama is unlikely to dwell heavily on the findings of a bipartisan deficit commission that urged a bold overhaul of the U.S. tax code, while promoting deep spending cuts that upset many on the left wing of his Democratic party.

David Walker, a former U.S. comptroller general appointed by former President Bill Clinton, said Obama must explain the deficit has risen due to emergency factors caused by the recession but also assure Americans he has a long-term plan.

"He has got to acknowledge that trillion dollar deficits are a concern. ... But he has also got to explain most of it was due to temporary factors, and he needs specific proposals that are credible," said Walker, who heads Comeback America Initiative, a group aimed at promoting fiscal discipline.

With an unemployment rate of 9.4 percent and 14.5 million Americans counted as out of work, the White House wants to ensure any cuts in federal spending do not undermine the country's gradual economic recovery.

(Additional reporting by David Morgan; Editing by Jackie Frank)