By Mark Felsenthal and Jeff Mason

WASHINGTON (Reuters) – President Barack Obama will strike a firmly populist tone in his 2015 budget plan on Tuesday, proposing to pay for an expansion of a popular tax credit for the working poor by eliminating tax breaks claimed by wealthy Americans.

The proposal to expand one of the most popular U.S. government poverty reduction programs, the Earned Income Tax Credit, would cost $60 billion, a modest amount in a budget in which the president has $1.014 trillion in spending to parcel out, the White House said.

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Obama would pay for the tax credit expansion by closing tax loopholes used typically by wealthy investors or employees of professional service companies such as law, consulting or lobbying firms.

The president’s budget request is a scant two-tenths of a percent higher than his 2014 budget of $1.012 trillion because both amounts were set in a congressional budget deal in January.

Even so, Obama’s budget recommendation stands little or no chance of being approved as is by Congress, where Republicans, who control the House of Representatives, disagree with the president’s policy priorities, such as spending government money on job training.

But the document will provide an agenda for Obama’s fellow Democrats in a congressional election year and help the president shift the debate to poverty reduction and middle-class betterment and away from deficit reduction, a theme that has dominated Washington budget battles for the past three years.

Republicans issued their own salvo in the anti-poverty debate on Monday as House of Representatives Budget Committee Chairman Paul Ryan, a potential presidential contender in 2016, argued in a report that the government, for all its massive spending on programs to aid the poor, had barely made a dent in poverty over the past 50 years.

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To pay for his proposals, Obama would close the “carried interest” tax loophole, which benefits U.S. private equity and venture capital executives.

The tax break allows those financiers – many of whom are among the wealthiest people in the country – to treat such income as capital gains, making it subject to a tax rate of only 20 percent, instead of the nearly 40 percent top rate on ordinary income paid by the highest earners.

‘GINGRICH’ LOOPHOLE

The president’s budget will also target a controversial loophole certain self-employed individuals can use to avoid paying taxes for the U.S. Social Security and Medicare programs.

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The White House referred to that as the “Gingrich” loophole after former Republican House Speaker Newt Gingrich. As a Republican presidential hopeful in 2012, Gingrich was criticized for taking that tax break after he publicly released his personal tax filings.

But the criticism can cut both ways: Republicans note that former Democratic presidential hopeful John Edwards came under similar fire for using the tax break after he released personal tax documents on the campaign trail.

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Obama will also try to use the budget to boost the middle class by making contributions to workers’ tax-protected retirement accounts automatic. Currently, workers must elect to have such contributions made to Individual Retirement Accounts, and the White House says the switch will benefit about 13 million workers.

The president has said that despite the tight spending caps on his budget, he will propose to spend $302 billion in highways, bridges and transit projects, to be paid for in part by ending some business tax breaks.

(Reporting by Mark Felsenthal and Jeff Mason; Editing by Peter Cooney)

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[Image via Agence France-Presse]