According to White House estimates, the new framework would require $6.6 trillion in fresh government borrowing over the next decade. That’s only slightly less borrowing than projected in the budget outline Obama proposed in April.
Both parties, in their budget talks this summer, set an even earlier White House budget proposal submitted in February as the benchmark for measuring deficit savings. Against that standard, the new debt-reduction plan would save $3 trillion over the next decade — well short of the $4 trillion target.
The latest Obama plan “doesn’t produce any more in realistic savings than the plan they offered in April,” said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget. “They’ve filled in details, repackaged it and replaced one gimmick with another. They don't even stabilize the debt. This is just not enough.”
The most disheartening development, MacGuineas and others said, is Obama’s decision to count $1.1 trillion in savings from the drawdown of troops in Iraq and Afghanistan toward his debt-reduction total. Because Obama has no intention of continuing war spending at last year’s elevated levels, that $1.1 trillion would never have been spent.
Congressional Republicans are resisting the move to count war savings toward deficit reduction. But congressional Democrats are preparing a major push to count such savings in the budget blueprint under development by a bipartisan joint committee on Capitol Hill.
The “supercommittee” is under orders to produce a 10-year plan to save at least $1.2 trillion by Thanksgiving. If the panel counts war savings, “then it’s over,” MacGuineas said. “The committee will have done nothing real.”
Obama’s proposals to overhaul the tax code, which were included in the deficit-reduction plan, drew criticism. In his previous budgets, he has measured his policies against a baseline that assumes a continuation of tax cuts for the middle class enacted under President George W. Bush; those cuts are scheduled to expire next year. Because Obama wants to extend the middle-class tax cuts, the assumption permits him to do so without appearing to make annual budget deficits worse.
This month, however, the White House began using a new baseline that assumes continuation of all the Bush-era tax cuts, including those for high earners as well as for the middle class. This approach, as one senior GOP aide put it, allows Obama to claim “fictitious savings” of $866 billion over the next decade by letting the tax cuts expire for high earners.
“Almost $2 trillion of the $3 trillion [savings] total is obtained by choosing the most convenient baseline assumption,” said Robert Bixby, executive director of the bipartisan Concord Coalition. “There are, of course, some legitimate proposals here, but not the kind of structural changes that are needed in entitlement programs and tax expenditures to put the budget on a sustainable path.”
Even the rhetorical centerpiece of Obama’s plan — a new millionaire’s tax dubbed the “Buffett Rule,” after billionaire investor Warren Buffett — appeared to be more symbol than substance, tax experts said. The proposal calls for an overhaul of the tax code that would ensure that the wealthiest Americans pay taxes at the same rate that applies to the upper middle class, currently 28 percent.
Because much of their earnings come from investment income, which is taxed at lower rates than wages, the 400 wealthiest Americans paid an average income tax rate of 16.6 percent in 2007.
Tax experts said the idea could generate a significant amount of money. But the White House declined to offer a detailed proposal and instead encouraged Congress to apply the ill-defined Buffett Rule as it undertakes tax reform.
The rest of the president’s tax plan was largely a repackaging of previous proposals that have gone nowhere in Congress, including a plan to limit the value of itemized deductions for households earning more than $250,000 a year.
Obama called again for an overhaul of the corporate tax code, but there were few new details about how the administration would tackle that task. The plan calls for raising taxes on private-equity executives, rolling back oil and gas subsidies, and making some changes to the taxation of overseas income. Many of the measures have appeared in previous Obama budgets and in legislation he unveiled this month to pay for a proposed $447 billion jobs bill.
“It’s all stuff that’s been in the budget before,” said Ken Kies, a longtime corporate tax lobbyist. “There’s absolutely nothing new here.”