Obama’s debt-reduction plan: $3 trillion in savings, half from new tax revenue
President Obama will announce a proposal on Monday to tame the nation’s rocketing federal debt, calling for $1.5 trillion in new revenue as part of a plan to find more than $3 trillion in budget savings over a decade, senior administration officials said.
The proposal draws a sharp contrast with Republicans and amounts more to an opening play in the fall debate over the economy than another attempt to find common ground with the opposing party.
Combined with his call this month for $450 billion in new stimulus, the proposal represents a more populist approach to confronting the nation’s economic travails than the compromises he advocated earlier this summer.
Obama will propose new taxes on the wealthy, a special new tax for millionaires, and eliminating or scaling back a variety of loopholes and deductions, officials say. About half of the tax savings would come from the expiration next year of the George W. Bush administration tax cuts for the wealthy.
But the president won’t call for any changes in Social Security, officials say, and is seeking less-aggressive changes to Medicare and Medicaid than previously considered. He will propose $320 billion in health-care savings but will not include raising the Medicare eligibility age from 65 to 67, officials said.
Any reduction in Medicare benefits would not begin until 2017, they said. Other cuts in domestic spending would bring the total spending savings to $580 billion. About $1 trillion in savings is also expected from winding down the wars in Iraq and Afghanistan.
Obama will pledge to veto any cut in entitlements that does not also include increases in tax revenue.
Coming as a congressional supercommittee goes to work to find budget savings this fall, Obama’s position will probably delight Democrats, who have fretted for months that he is doing too little to solve the nation’s jobs crisis while being too willing to embrace major changes to Medicare and Social Security.
But his plan has little chance of passing and is already inflaming Republicans, who have vowed to oppose new taxes and have called for deep cuts in federal spending and entitlements. On Sunday, Republicans responded with vitriol to the proposal to create a special tax for millionaires.
“Class warfare may make for really good politics, but it makes for rotten economics,” Rep. Paul Ryan (R-Wis.), chairman of the House Budget Committee, said on “Fox News Sunday.” “It adds further instability to our system, more uncertainty, and it punishes job creation.”
Last week, Obama told supporters at a fundraiser in Washington that the upcoming debate will crystallize the difference between his views and those of the GOP.
He said that “2012 is going to offer a clearer contrast than I think we’ve ever seen before,” adding: “If you see the direction that the Republican Party is now going in, you have a party that offers a fundamentally different vision of where America should be, and what we should be aspiring to, and what our core values are.”
White House officials said Obama will push for a new minimum tax rate for millionaires as part of a rewrite of the U.S. tax code. The measure is designed to compel the wealthiest Americans to pay the same share of income in taxes as middle-class families.
The proposed tax, which Democrats welcomed, will target the top 0.3 percent of American earners, whose income often comes from investment profits, which are taxed at 15 percent — compared with the top tax bracket of 35 percent that the wealthiest Americans would ordinarily pay.
Obama is planning to call the special tax the “Buffett Rule,” in reference to the billionaire investor Warren Buffett, who has said that the richest Americans should pay more in taxes. (Buffett stepped down from The Washington Post’s board of directors this year.)
“Right now, we’ve thrown a big wet blanket over the private-sector economy,” Senate Minority Leader Mitch McConnell (R-Ky.) said Sunday on NBC’s “Meet the Press.” “We’ve borrowed too much. We’ve spent too much. We’re drastically over-regulating every aspect of the private sector in our country, and now we’re threatening to raise taxes on top of it. That’s not going to get the economy moving.”
Obama will make his presentation Monday morning in the Rose Garden of the White House. He also may call for adjusting cost-of-living increases, scaling back farm subsidies and altering contributions to federal pensions.
The spending cuts and entitlement changes are expected to come in the form of detailed language. But the tax proposals are expected to be a series of targets and goals for a tax code overhaul aimed at lowering rates for most Americans while eliminating a variety of loopholes and deductions.
Obama is also likely to discuss corporate taxation, another sensitive issue for Democrats, because the White House is seeking to lower rates for businesses overall.
As of this summer, Obama was proposing an extension of the 2011 payroll tax cut and a renewal of unemployment benefits as the centerpiece of his economic strategy — measures that would pump about $160 billion into the economy. The president also called for a pooling of federal resources with local and private money into a bank to hire construction workers. And he called for the passage of trade agreements with South Korea, Colombia and Panama — causing some tensions with Democrats worried that the trade deals would drive jobs overseas.
Then, after Labor Day, Obama addressed a joint session of Congress and called for nearly $450 billion in tax cuts and direct infrastructure spending to boost the economy. While he mentioned the trade agreements in that speech, he has rarely mentioned them since.
Obama had agreed to take on his own party’s sacred cows — Social Security and Medicare — in a proposed deal earlier this summer with House Speaker John A. Boehner (R-Ohio). He agreed to reduce Social Security benefits starting in 2015 and to find nearly $400 billion in savings in Medicare and Medicaid, including by raising premiums for retirees and the eligibility age from 65 to 67.
But that proposed deal, which came together under the threat that the nation’s debt ceiling would not be raised, fell apart. Another, more modest deal averted a potential default on the debt.
Since then, Obama’s advisers decided Social Security should not be a part of the president’s proposal. Aides say the program is not a driver of short- and medium-term federal deficits and thus should be examined on a separate track.
Obama’s advisers have been vigorously debating whether to include raising the Medicare eligibility age as a component in their plans — a move opposed by most Democrats. “If he eschews Social Security cuts and raising the Medicare eligibility rage, I think he’ll be moving back to mainstream Democratic policy,” said Lawrence Mishel, president of the Economic Policy Institute.
A deal this summer to raise the federal debt ceiling included nearly $1 trillion in cuts in domestic spending and the creation of a congressional committee to find between $1.2 trillion and $1.5 trillion in additional budget savings.
Lately, Obama has urged the committee to find more in savings.
“We’re always going to be willing to work with anybody who works with us, but the president has an obligation to put forward those things that he thinks are important for our economy and for our country,” said David Axelrod, a longtime adviser to Obama.