* U.S. discretionary spending to fall to 2004 levels
* Obama proposes replacing sequester cuts, boosting spending
By David Lawder
WASHINGTON, April 10 (Reuters) - Just hours after proposing a budget that would replace automatic spending cuts required by law, President Barack Obama on Wednesday set in motion the next $109 billion of the reductions to military and domestic programs for the year starting on Oct. 1.
The White House announced that Obama signed the sequester order, which directs that total discretionary spending for fiscal year 2014 be cut by $91 billion to a total of $967 billion - the lowest level since 2004.
Obama was required by law to sign the order after submitting his budget request to Congress. The appropriations committees in the House of Representatives and the Senate are holding hearings this week over how to divide the dwindling discretionary funding pie for programs ranging from education to weapons development to national parks.
Little has been done to stop the initial $85 billion in cuts that went into effect on March 1 and threatens to prompt temporary layoffs for hundreds of thousands of government workers and defense contractor employees.
If left in place, the sequester would force about another $1.1 trillion in across-the board spending cuts over a decade.
The Republican budget, authored by Representative Paul Ryan and passed by the U.S. House of Representatives last month, keeps the sequester savings in place, and maintains the same $967 billion spending cap now ordered by Obama for fiscal 2014.
But Obama's budget, like the one passed by Senate Democrats, proposed to replace the sequester, largely through tax increases on the wealthy and spending cuts elsewhere, including health, and a lower inflation gauge for cost of living increases associated with tax brackets, Social Security, and other program.
The budgets represent a starting point for talks in the next few months over deficit reduction as a new debt limit increase deadline looms by August.