President Barack Obama's targets for cutting the budget deficit remain in reach, a top aide said on Sunday, despite an alarmingly steep U.S. economic decline that could throw off revenue collections.

White House Budget Director Peter Orzag also fiercely defended a proposed $600 billion plan to tax high-income Americans to pay for a healthcare overhaul and another $600 billion plan to sell companies permits to emit carbon-dioxide gases above a fixed limit.

Republicans have complained that measures would stifle any economic rebound and weaken small businesses.

I just reject the theory that the only thing that drives economic performance is the marginal tax rate on wealthy Americans, and the only way of being pro-market is to funnel billions and billions of dollars of subsidies to corporations, Orzag said on ABC's This Week.

Obama last week proposed a $3.6 trillion spending plan for fiscal 2010, with a deficit of $1.12 trillion, and projected the deficit would fall to $533 billion in 2013. He projected a $1.75 trillion deficit for 2009, including the impact of a two-year economic stimulus package costing $787 billion.

The deficit forecasts were based in part on predictions that the economy would shrink 1.2 percent in 2009 before growing again by 3.2 percent in 2010 -- figures already more optimistic than those of most economists surveyed by the Blue Chip Economic Indicators newsletter just before the stimulus plan was approved.

Then on Friday, the government reported the U.S. economy shrank by 6.2 percent in the last three months of 2008, the steepest since 1982 and far worse than most forecasts.

A sharper-than-expected contraction in the economy would lead to weakened government revenue from income taxes and other sources.

But asked if the deficit-reduction targets remained on track, Orzag said, I think so.

The deficit reduction doesn't just come from the economy recovering. And by 2013 or 2014, let's all hope that the economy is back on its feet, Orzag said.

He said spending cuts and new revenue sources would also help meet the targets.

HEALTH CARE OVERHAUL

Obama last week proposed a 10-year, $646 billion overhaul to expand healthcare to the 46 million people who are uninsured in the United States. It would be financed largely by raising taxes on households earning more than $250,000 a year. Much of that would come from letting tax cuts enacted by President George W. Bush expire on schedule in 2011.

Some Democrats have joined Republicans in expressing concerns about the tax increases.

As we see in this budget that has been presented last week, it is proposing massive tax increases on people and on businesses that can't afford to pay them, said Representative Eric Cantor, who has led resistance among House Republicans to Obama's economic agenda.

But Orzag said a healthcare overhaul was essential to controlling the federal budget. Those reforms to health care, making the system more efficient, will ... vastly improve our long-term fiscal future, Orzag said.

The tax measures were intended to finance the plan without adding to the deficit, and if they are blocked, some other way would have to be found to pay for them, he said.

Federal spending on healthcare programs will hit 5 percent of total economic output this year and is on track to reach 12 percent by 2050, the Congressional Budget Office says.

Republicans have also criticized as a carbon tax Obama's proposal to raise $646 billion through his carbon emissions plan aimed also at fighting global warming.

Orzag acknowledged that the plan would broadly increase Americans' energy bills. But 95 percent of Americans would get a tax cut and there would be other benefits including the healthcare overhaul and more college assistance, he said.

(Editing by Anthony Boadle)

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