WRAPUP 2-Republicans reject tax hike, push cuts in 'fiscal cliff' offer

* White House dismisses Republican proposal

* Big gap between Republicans, Democrats on spending, taxes

* Liberal group: No deal is better than a bad deal

WASHINGTON, Dec 3 (Reuters) - Republicans proposed steep

spending cuts on Monday but gave no ground on President Barack

Obama's call to raise taxes on the wealthiest in their first

formal proposal to avert a "fiscal cliff" that could push the

U.S. economy into recession.

After days of stalemate, the Republican offer shows deep

differences with President Barack Obama as the two sides work to

head off across-the-board spending cuts and tax increases due to

take effect in January.

The White House dismissed the proposal and said it contained

no new ideas. But it could allow negotiators to begin work in

earnest as both sides now have outlined their visions in

concrete terms. Analysts say the talks will have to show

progress this week to ensure that a deal can be signed into law

before the end of the year.

"The American people expect their leaders to find fair

middle ground to address the nation's most pressing challenges,"

House of Representatives Speaker John Boehner of Ohio and

several other top House Republicans wrote in a letter to Obama.

Both the Republican and White House plans would rely on

spending cuts and increased tax revenue to trim budget deficits

by more than $4 trillion over the coming 10 years. According to

the Republicans, their plan would save $240 billion more than

Obama's proposal.

Beyond the headline numbers, the two plans reveal deep

philosophical divisions about how the country should balance tax

increases and spending cuts to put the country's finances on a

sustainable course.

Republicans envision $1 trillion more in spending cuts than

Obama has proposed, while Obama wants $800 billion more in tax

increases and $200 billion in measures to boost the sluggish

economy.

The Republican proposal would overhaul the complicated U.S.

tax code to raise $800 billion in new revenue. Boehner

tentatively agreed to that much in new tax revenue, presumably

from closing loopholes in deductions, in failed talks with Obama

in the summer of 2011.

Monday's proposal marks the first time his party has floated

a budget plan that departs from the anti-tax stance that has

defined the party for decades.

But the Republicans said they would oppose raising tax rates

on the wealthiest 2 percent of U.S. households, which is a

central element of Obama's proposal.

"Until the Republicans in Congress are willing to get

serious about asking the wealthiest to pay slightly higher tax

rates, we won't be able to achieve a significant, balanced

approach to reduce our deficit," White House communications

director Dan Pfeiffer said in a prepared statement.

The Republican plan would also trim government healthcare

costs by $600 billion over a decade, $250 billion more than

Obama proposed in his opening bid last week.

It would slow the growth of cost-of-living increases on

federal benefits by $200 billion by changing the way they are

calculated and cut other government spending by $600 billion.

MUTUAL DISTRUST

The cuts proposed by Republicans are sure to face fierce

resistance from Democrats, who are still smarting over $1.1

trillion in cuts that Republicans extracted in a budget deal

last year.

The top Democrats in the House and the Senate said the plan

was unacceptable because it would hurt the middle class while

protecting the wealthy. House Democratic Leader Nancy Pelosi

said she would try to force a vote on Tuesday to raise tax rates

for the wealthiest.

Negotiators must overcome more than just mutual distrust as

they work toward a deal in coming weeks. While some business

leaders and grassroots groups are urging Washington to craft a

"grand bargain" that would put federal finances on a sustainable

course, lawmakers also face a more immediate lobbying blitz from

groups that worry that any deal could decimate favored federal

programs.

Anti-tax activist Grover Norquist has been in the spotlight

as he pressures Republicans to stick by a pledge many have

signed to oppose any tax increases.

On the other side of the ledger, industry groups are

scrambling to protect spending on everything from education to

defense and scientific research. Liberal groups have mobilized

to protect popular federal health and retirement programs.

"Everyone wants something to happen before the end of the

year, but what's more important than having something happen is

having the right thing happen," said Nancy Altman, co-director

of Social Security Works, a coalition of liberal and labor

groups.

"A bad deal is worse than no deal at all," she said.

Several defense contractors said their business has already

been hurt by concerns about the looming, across-the-board

spending cuts that will take effect in January absent a deal.

"We are talking a good game, but are still unwilling to park

short-term self-interest," said David Langstaff, chief executive

of engineering firm TASC Inc. "Every trade group, special

interest and corporate lobbyist is up on Capitol Hill clamoring

that Congress solve the problem ... but don't touch my budgets!

We can't have it both ways."

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