White House press secretary Jay Carney said the allegations were "blatantly dishonest ... hypocrisy knows no bounds." He added that Romney, while serving as Massachusetts governor, had once petitioned the White House to loosen employment rules for those on welfare.
Former President Bill Clinton joined the fray, saying in a statement Tuesday night that the TV ad's assertion was "not true" and that the ad was misleading.
Romney made his accusation in a relatively rare occurrence in the race for the White House - an appearance before voters outside the small group of battleground states likely to settle the Nov. 6 election.
Illinois and its 20 electoral votes are politically safe territory for Obama in the fall. Romney was there for a fundraiser as well as a stop at a manufacturing company, part of the intense competition between the two candidates to stockpile cash for the stretch run to Election Day.
Romney picked up more than $2 million during his swing through Chicago, and another fundraising evening in West Des Moines, Iowa, gave him at least another $1.8 million.
The president was speaking at two private events, one of them a fundraiser, at a hotel a few blocks from the White House. And after being outraised by Romney in recent months, his campaign announced a fundraising "shoot-around" and dinner in New York on Aug. 22 featuring several professional basketball stars.
In a race as close as this one, the taunts were getting personal.
Romney, interviewed on Fox News, said Obama was "saying things that are not accurate" when it comes to taxes. He referred to a crack the president made on Monday night as "Obama-loney," rhyming it with baloney.
At a fundraiser, Obama called Romney's tax plan Robin Hood in reverse - "Romney Hood" - and repeated his accusation that it would mean tax breaks for the wealthiest Americans while forcing the middle class to pay the IRS as much as $2,000 more a year.
The president wants to extend tax breaks due to expire at all income levels, except above $200,000 for individuals and $250,000 for a couple. He has made his proposal central to a pitch to middle- and working-class voters as he seeks a second term with unemployment at 8.3 percent.
Romney wants to keep the tax cuts in place at all income levels, and has proposed an additional 20 percent reduction in rates.
Romney's decision to introduce the welfare issue into the campaign seemed aimed at blue-collar, white working-class voters in a weak economy, and suggested that Obama might be gaining ground politically with his position on taxes.
It also marked an attempt to take the gloss off the recent announcement that Clinton will have a prime-time speaking slot at the Democratic National Convention in Charlotte, N.C. early next month.
Appearing before hundreds of supporters at a manufacturing plant near Chicago, Obama's hometown, the Republican challenger said bipartisan legislation signed into law by Clinton in 1996 "reformed welfare to encourage people to work. They did not want a culture of dependency to continue to grow in our country," he said of the then-president and Congress, under Republican control at the time.
He said that, just recently, Obama "has tried to reverse that accomplishment by taking the work requirement out of welfare. That is wrong, and If I'm president, I'll put work back in welfare. ...We will end a culture of dependency and restore a culture of good, hard work," he said.
Romney's new ad buttressed the point.
"Under Obama's plan you wouldn't have to work and wouldn't have to train for a job. They just send you a welfare check, and welfare to work goes back to being plan old welfare," the announcer says in the commercial.
"Mitt Romney will restore the work requirement."
Under the law signed by Clinton and amended a decade later, the federal government does not provide a guaranteed benefit to welfare recipients. Instead, the states receive federal funds and are permitted to establish a variety of programs to benefit the poor. The government imposes a limit on the length of time families can receive aid and requires recipients eventually to go to work.
The Romney campaign circulated material during the day that quoted Obama, then a state senator in Illinois, as saying he "probably would have voted against it" if he had been in Congress.
The Obama administration recently announced plans to issue waivers to states that wanted "to test alternative and innovative strategies, policies and procedures" to improve employment among needy families. It said it was acting after receiving requests from some of the nation's governors, including Republicans in Utah and Nevada. But senior GOP lawmakers attacked the move as an attempt to undermine the welfare-to-work requirements in effect for more than a decade.
In his statement, Clinton said there would be no waiver of time limits, which he called an important feature of the 1996 law, under Obama's plan. "The Romney ad is especially disappointing because, as governor of Massachusetts, he requested changes in the welfare reform laws that could have eliminated time limits altogether," Clinton said. "We need a bipartisan consensus to continue to help people move from welfare to work even during these hard times, not more misleading campaign ads."
Officials with access to detailed advertising information said it appeared the commercial was airing at heavy levels in Colorado, Florida, Iowa, North Carolina, New Hampshire, Nevada, Ohio and Virginia - states where the race is closest.
Romney was himself targeted with a new ad during the day, this one launched by Priorities USA Action, a super PAC that supports Obama.
It features a former Kansas City steelworker who says his company was taken over in 1993 by a group that included Bain Capital, the private equity firm co-founded by Romney.
"When Mitt Romney and Bain closed the plant, I lost my health care, and my family lost their health care," he said. His wife became ill, but "I think maybe she didn't say anything because she knew we couldn't afford the insurance," he says. By the time she went to the hospital, she was diagnosed with cancer and died quickly, he said.
"I do not think Mitt Romney realizes what he's done to anyone, and furthermore I do not think Mitt Romney is concerned."
In response, Ryan Williams, a spokesman for Romney, said Obama's allies "continue to use discredited and dishonest attacks in a contemptible effort to conceal the administration's deplorable economic record."
The timeline for Romney's role at Bain, the plant's closing and the woman's death raises questions about the legitimacy of linking the events.
Romney left Bain Capital in 1999 to lead preparations for the 2002 Winter Olympics. Although he retained his official standing as Bain's founder and chief executive until 2002, his campaign says he didn't have a managerial role. The plant closed in 2001 and the steelworker's wife died in 2006.
As the party conventions neared, Republicans and Democrats were fleshing out the speaking schedules for their gatherings.
Republicans said Romney's most persistent primary rival, former Pennsylvania Sen. Rick Santorum, would have a turn at the speaker's podium. So, too, former Florida Gov. Jeb Bush and Kentucky Sen. Rand Paul, a tea party favorite.
Former President Jimmy Carter will tape a video message to be aired in prime time at the Democratic convention.