Taxes poised to be US campaign issue

United States President Barack Obama has taken an aggressive stance towards reducing soaring fiscal deficits, yesterday appearing to be prepared to take the Republicans front on over tax issues.

As expected, Mr Obama adopted "The Buffett Rule" which promotes tax increases for the wealthy in what Republicans have termed class warfare.

Berkshire Hathaway chairman Warren Buffett recently lamented that he was paying tax at a lesser rate than others in his office, prompting Republicans to suggest he pay his staff more.

However, Mr Obama has proposed raising taxes by $US1.5 trillion ($NZ1.8 trillion), mostly on the wealthy, while making only modest cuts in Medicare and Medicaid, and ring-fencing Social Security from any change.

The plan would also cut military spending by $US1 trillion plus.

Craigs Investment Partners broker Chris Timms, of Dunedin, said the US had so many tax exemptions that wealthy people, such as Mr Buffett, could take their tax rate down to 15%.

An online search showed the 15% tax rate was also available to those on lower incomes, provided they claimed for their children, their mortgage and other expenses.

Mr Timms said it was early days for Mr Obama's tax plan. A deal from the "super committee" needed to be agreed by November 23 and approved by Congress, otherwise broad cuts would be posed on government agencies in 2013, after the election next year.

If a deal could not be reached, the President's plan amounted to a campaign platform, setting up a sharp contrast to the Republicans, he said.

"At this early stage, it is political posturing. Mr Obama has indicated he will veto any legislation that seeks to cut the deficit through spending cuts alone and does not include revenue increases in the form of tax increases on the wealthy."

Mr Timms said the market barely responded to the tax proposal, with most analysts focusing on Greece.

Markets would also be watching the expanded two-day Federal Open Market Committee meeting this week, where US Federal Reserve chairman Ben Bernanke was expected to unveil the Fed's latest bid to jump-start the world's biggest economy.

The market was betting that the Fed would implement a "light twist" - a re-profiling of US Government debt to bring long-term rates down and leave the short end of the curve unchanged. That move was seen as supportive of business and housing markets which borrowed at long-term rates, he said.

The two things likely to hold back the Fed from engaging in a full-fledged twist were a recent increase in inflation and Mr Obama's recently unveiled jobs plan, which calls for $US447 billion more in fiscal stimulus, through tax cuts and spending.