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In a pathbreaking move, US President Barack Obama said he will not extend tax cuts for rich Americans.

Explaining that America cannot support the rich population with tax sops anymore, Obama said he would not renew the ten-year reduction for families make more than $250,000 a year and individuals making more than $200,000.

Middle class Americans will continue to enjoy tax benefits.

However, critics point out that rich Americans already pay a higher taxes when compared to rich citizens of other European nations.

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Pointing to the huge deficit caused by the controversial policies, Obama said, "We are ready to give tax cuts to every American making $250,000 or less. For any income over this amount, the tax rates would go back to what they were under President Clinton."

"From our first days as a nation, we have put our faith in free markets and free enterprise as the engine of America's wealth and prosperity.  More than citizens of any other country, we are rugged individualists, a self-reliant people with a healthy skepticism of too much government," he said.

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Recounting America's downfall, Obama said the country's finances were in great shape till year 2000.

"We went from deficit to surplus. America was actually on track to becoming completely debt-free, and we were prepared for the retirement of the Baby Boomers. But after Democrats and Republicans committed to fiscal discipline during the 1990s, we lost our way in the decade that followed," he said.

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The increased spend on two wars and an expensive prescription drug program and tax cuts for millionaires and billionaires have wrecked the nation's fiscal status, Obama said.

Tax cuts will force the nation to borrow an average of $500 billion every year over the next decade.

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"When I took office, our projected deficit was more than $1 trillion. On top of that, we faced a terrible financial crisis and a recession that, like most recessions, led us to temporarily borrow even more. In this case, we took a series of emergency steps that saved millions of jobs, kept credit flowing, and provided working families extra money in their pockets. It was the right thing to do, but these steps were expensive, and added to our deficits in the short term," Obama said.

Obama said by the end of this decade, the interest we owe on our debt could rise to a whopping $1 trillion.

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"As the Baby Boomers start to retire and health care costs continue to rise, the situation will get even worse. By 2025, the amount of taxes we currently pay will only be enough to finance our health care programs, Social security, and the interest we owe on our debt. That's it. Every other national priority - education, transportation, even national security will have to be paid for with borrowed money," Obama said.

Warning that rising debt will cost Americans their jobs and hit the economy, Obama said it will also prevent America from making the investments the nation needs to win the future.

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"We won't be able to afford good schools, new research, or the repair of roads and bridges all the things that will create new jobs and businesses here in America. Businesses will be less likely to invest and open up shop in a country that seems unwilling or unable to balance its books. And if our creditors start worrying that we may be unable to pay back our debts, it could drive up interest rates for everyone who borrows money making it harder for businesses to expand and hire, or families to take out a mortgage,"

Obama announced a four-pronged strategy to put the nation on the growth path.

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The first is to keep annual domestic spending low by building on the savings that both parties agreed to last week a step that will save America about $750 billion over twelve years, he said.

The second step is to find additional savings in the defence budget.

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The third step is to further reduce health care spending in the budget.

And finally the fourth is to reduce spending in the tax code. 

Taking the wealthiest Americans is the only way to prevent a tax hike on middle-class Americans, Obama said.

"My budget calls for limiting itemised deductions for the wealthiest 2 per cent of Americans a reform that would reduce the deficit by $320 billion over ten years," Obama said.

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Obama said he is confident that these measure can reduce the deficit by $4 trillion over the next twelve years.

He explained that this cost cutting method would help save $2 trillion and will lower interest payments on the debt by $1 trillion.

"It calls for tax reform to cut about $1 trillion in spending from the tax code. And it achieves these goals while protecting the middle class, our commitment to seniors, and our investments in the future.

If the recovery speeds up and our economy grows faster than our current projections, we can make even greater progress," Obama said optimistically.