CQ TODAY ONLINE NEWS
Sept. 19, 2011 – 10:36 p.m.
Deficit Plan Marks a Starting Point
By Sam Goldfarb, CQ Staff
President Obama’s latest offer in the deficit reduction battle, and in particular his call for tax increases, drew swift condemnation from top congressional Republicans even as Democrats closed ranks in support of the president.
Nonetheless, elements of Obama’s plan might be adopted by the special bipartisan deficit reduction committee as it searches for $1.2 trillion in savings over 10 years to stave off painful, across-the-board spending cuts.
In short, the White House proposal and the reaction to it lays out some potential ground for compromise and at the same time clearly delineates where the parties will refuse to compromise — giving directions to committee members where they might not want to go.
Presenting his plan in a Rose Garden speech, Obama vowed to veto any bill that reduces benefits for Medicare recipients without also raising new revenue from upper-income earners or large corporations. Earlier, Speaker
Aside from elements that run afoul of Boehner’s declaration, Obama’s road map includes roughly $560 billion in deficit reduction on which the sides might agree. The bulk of the savings would come from mandatory spending programs, including Medicare and Medicaid, but would not directly affect Medicare beneficiaries.
That savings figure offers a substantial start toward meeting the deficit committee’s goal. Moreover, Obama’s plan calls for overhauling the tax code by eliminating some tax breaks and reducing rates overall, the kind of broad rewrite that Republicans have been contemplating, at least in theory.
Just such an overhaul, which possibly would raise additional revenue by streamlining the code, was the centerpiece of high-stakes deficit talks between Boehner and Obama this past summer. The two leaders were unable to close a deal then, amid objections from rank-and-file conservatives and liberals, but both sides are still considering the possibility.
Tough Partisan Line
White House officials openly acknowledged that the president’s proposal would be even less appealing to Republicans than previous offers made during the debt limit negotiations and rejected at the time.
Still, Treasury Secretary
“I don’t know any serious policy makers on either side of the aisle who think sequestration is a good place to go,” Geithner said. “It was designed to be something that would have bad consequences wherever you look, because it is not a serious set of policies. It’s an across-the-board cut.”
Under the law, a sequester would equal the difference between $1.2 trillion and whatever savings the committee identifies and Congress enacts. Thus, a bill that reduces the deficit by $560 billion would yield automatic spending cuts of approximately $600 billion.
Office of Management and Budget Director
Deficit Plan Marks a Starting Point
Republicans were generally nonplussed with the latest offering, reiterating many of the criticisms they leveled in the budget battles over the summer.
“Veto threats, a massive tax hike, phantom savings, and punting on entitlement reform is not a recipe for economic or job growth — or even meaningful deficit reduction,” said Senate Minority Leader
Nevertheless, McConnell, not unlike Geithner and Lew, still expressed faith in the process that Congress has set up for itself. “The good news is that the joint committee is taking this issue far more seriously than the White House,” he said.
Liberal Democrats appeared buoyed by Obama’s speech in which he said that “the wealthiest Americans and biggest corporations have to pay their fair share” of taxes.
“We applaud the president’s good-faith efforts to address the real drivers of our national deficit: tax breaks for wealthy elites, two wars, giveaways to big corporations, and the ensuing Republican recession,” said Reps.
A Detailed Plan
During the summer debt limit negotiations, Obama held off releasing a detailed deficit reduction plan, preferring instead to search for a compromise with GOP leaders behind closed doors.
Now, the president has released two detailed proposals within a week. The first, submitted as legislative language to Congress (
Much of Obama’s proposal will sound familiar to lawmakers, from his call to overhaul the tax code to suggestions for how to improve entitlement programs while reducing their costs.
Overall, $580 billion in savings would come from mandatory spending programs, including $248 billion from Medicare, $72 billion from Medicaid and other health-related spending, $33 billion from agriculture programs and $42.5 billion from federal employee benefits. Other savings would be achieved by “restructuring government operations” and reducing “waste and abuse,” according to a White House fact sheet.
Most of the Medicare savings — roughly 90 percent, or $224 billion — would come from reducing payments to health care providers and pharmaceutical companies. The minimum age for Medicare eligibility would not be raised. But some recipients, particularly those with higher incomes, might have to pay higher premiums to receive the same service, beginning in 2017.
Common Ground on Tax Policy
Obama’s plan calls for increasing tax receipts by $1.5 trillion. And he would reduce spending by $1.1 trillion by capping the costs of the U.S. military presence in Iraq and Afghanistan as those war wind down. An additional $430 billion in deficit reduction would come from paying less interest on the government’s debt.
Deficit Plan Marks a Starting Point
Apart from their objections to new taxes, Republican lawmakers have previously objected to tallying any savings from war costs, arguing that the troop drawdown is already scheduled to happen.
Among Obama’s tax proposals was a call to limit tax deductions for upper-income earners and a longstanding effort to allow lower rates for top earners to expire on schedule at the end of 2012.
At the same time, Obama endorsed a long-term effort to rewrite the tax code, a proposal that bears strong similarity to what Republicans have advocated.
Still, among Obama’s “principles” for a tax overhaul is that it raises an additional $1.5 trillion and ensures that individuals earning $1 million or more pay an effective tax rate that is higher than that paid by people with less income.
Those ideas are unacceptable to many GOP lawmakers. For instance, during the debt limit negotiations, Boehner insisted that a tax overhaul raise no more than $800 billion. Republicans are also hesitant to increase the relative tax burden of higher-income taxpayers, arguing they already pay a disproportionate share of taxes.
Other tax overhaul guidelines from Obama should appeal to Republicans. They include lower top tax rates for individuals and corporations, fewer tax breaks generally in order to broaden the base of taxable income, and a code that is more conducive to economic growth.
The joint committee on deficit reduction has scheduled a hearing for Thursday on options for raising revenue and overhauling the tax code.