Government shutdown averted, Obama will lay out plan this week to cut deficit

April 10, 2011

President Obama will lay out a broad plan to reduce the nation’s soaring deficit and debt this week, going further than he has before to scale back costly entitlement programs such as Medicare and other social programs.

In a proposal that will also include calls for hiking taxes on the rich, Obama will make clear he “believes we need significant deficit reduction in the coming years,” White House adviser David Plouffe said on CNN’s “State of the Union.”

Appearing on several Sunday shows, Plouffe said the deficit reduction plan envisioned by the president would include cuts to government health insurance and a discussion over reforming Social Security, as well as eliminating Bush-era tax cuts for people making over $250,000. He would not put a figure on the amount of deficit reduction.

Obama will fire a salvo in the war over government spending after a clash with Republicans over funding the government for the rest of this year nearly led to a shutdown. The Republicans announced an ambitious plan to slash government last week and may vote on it this week.

After having Vice President Biden negotiate the administration’s position on the 2011 budget until the last minute, Obama is now preparing his most extensive response yet to public concerns about the nation’s deficit and debt. The new strategy comes after months of Republican criticism that Obama has been too timid in his efforts to cut the deficit.

But speaking ABC’s “This Week, ” Plouffe sought to distinguish the Democratic approach to what he characterized as the Republican one.

“We can’t take a machete,” he said. “We have to take a scalpel, and we’re going to have to cut, we’re going to have to look carefully.”

He made clear that even the most popular, but expensive, programs are on th table. “You’re going to have to look at Medicare and Medicaid and see what kind of savings you can get,” Plouffe said on NBC’s “Meet the Press.”

Eric Cantor, House majority leader, responded on “Fox News Sunday,” saying, “I sit here and I listen to David Plouffe talk about their commitment to cut spending, and knowing full well that for the last two months, we’ve had to bring this president kicking and screaming to the table to cut spending.” He added, “In my opinion, it’s really hard to believe what this White House and the president is saying.”

The new chapter in the budget war began immediately after a late bargain was struck Friday that narrowly avoided a government shutdown.

After arriving at a budget deal to cut $38 billion from current spending levels and fund the government for the remainder of the fiscal year, Republicans and Democrats claimed victory. Both sides quickly attempted to seize the momentum with two major economic bills coming: first regarding the federal government’s ability to borrow money, and the 2012 Republican budget proposal to tackle the long-range deficit by fundamentally overhauling Medicare and Medicaid.

Congress nearly choked over a six-month budget, bringing Washington to a dramatic stalemate last week. But that was merely a dry run for the clashes to come this spring — the outcomes of which will determine whether the U.S. government goes into default and which promise to shape, if not define, the political landscape going into the 2012 presidential election.

The upcoming spending votes could usher in wide-ranging policy changes affecting health care, social issues, environmental regulation and taxes.

The opening salvo could come this week with a planned vote in the House on the GOP’s budget blueprint for 2012. The plan, introduced last week by Budget Committee Chairman Paul Ryan (R-Wis.), would reduce spending by $6 trillion over the next decade, in part by introducing profound reductions to popular entitlement programs.

When both chambers return from a two-week recess May 2, debate will begin over raising the $14.25 trillion federal debt ceiling. The government’s debt is projected to pass that mark by mid-May, and although Treasury Secretary Timothy F. Geithner has said he could buy more time with emergency measures, Congress must raise the limit by July 8 or the government would begin defaulting on its debt.

That, economists have warned, would send interest rates soaring and start another financial crisis.

Both parties tested

Last week’s drama over whether Congress could reach a budget deal and prevent a government shutdown tested the resolve of both parties. Crisis was averted literally at the eleventh hour — just before 11 p.m. Friday, an hour before government agencies were to run out of money.

On Saturday, Obama signed into law a stopgap measure to keep the government funded until Congress passes the longer-term deal this week. And with the sense of crisis lifted from Washington, the president bounded up the steps of the Lincoln Memorial to celebrate before a cheering crowd of tourists.

The final pact on 2011 spending called for $38 billion in cuts to federal agency budgets compared with last year’s levels, about $78.5 billion below the president’s initial funding request for 2011. The White House, which initially resisted any funding reductions, started touting all the cuts it signed off on in a statement that praised reductions of $13 billion in funding for education, health and labor programs.

The agreement underscored how a divided government, its leaders tugged by divergent political constituencies, could easily be broken.

“It’s showed that neither side is afraid to have a really hardballed negotiation, that closing down the government is an option on other things and that neither side is afraid to take it to the edge of the cliff,” said Rep. Jack Kingston (R-Ga.), who served during the 1995 shutdown.

The debt ceiling debate, which Sen. Kay Bailey Hutchison (R-Tex.) calls “Armageddon,” already has Wall Street and the business community anxious.

“The fact that we got up to the eleventh hour [in the budget debate] caused disruption and anxiety in a lot of people’s lives, but the difference of going down this same path with the debt ceiling, you don’t need to get to the eleventh hour before the markets start reacting,” Sen. Mark Warner (D-Va.) said.

Leaders in both parties view this as must-pass legislation. The White House is urging passage of a debt limit increase with no amendments, but officials acknowledge privately that they may need to make concessions, perhaps in the form of substantial spending cuts, to win support from House Republicans.

“We’re here mopping up their spilled milk, to be honest,” freshman Rep. Michael Grimm (R-N.Y.) said. “We’re in a financial crisis. If we don’t have massive cuts, we will lose the American dream for future generations.”

Many Republican freshmen have said they oppose increasing the debt limit, presenting House Speaker John A. Boehner (R-Ohio) with a challenge.

House Republican leaders are considering attaching the Ryan budget to the debt ceiling bill as an incentive to win over tea partyers , leadership aides say.

But the Ryan budget would be a non-starter in the Senate, where Democrats consider the proposed spending cuts and changes to Medicare and Medicaid to be far too extreme.

The Ryan plan would alter Medicare such that seniors would pick from a list of private insurance plans and the federal government would only subsidize their coverage. Medicaid, the health program for the poor, would be turned into a block grants program, with the federal government shipping money to states and letting states spend it.

The Ryan budget does not address Social Security or tax loopholes for corporations, both potential areas of savings. And it would lower the top income and corporate tax rate to 25 percent.

Senate strategy

In the Senate, Minority Leader Mitch McConnell (Ky.) outlined his strategy recently in a private session with Senate Republicans: He would make Majority Leader Harry M. Reid (Nev.) rely only on Democratic votes to pass the bill, forcing Democrats up for reelection in 2012 to vote for the measure to reach a 51-vote threshold, according to aides with knowledge of the talks. McConnell has also urged his caucus not to filibuster the debt ceiling, arguing that he does not want the party to be blamed for a debt crisis.

Democrats, meanwhile, plan to push for savings in two areas ruled off the table in the most recent budget fight: military spending and tax increases.

“We’re going to have to have an expanded playing field,” said Sen. Charles E. Schumer (N.Y.), the No. 3 Senate Democrat. He also suggested that subsidies to oil companies are a ripe target.

But some prominent voices in the party’s liberal base argued that Democrats will be at a disadvantage in these fights: By allowing Boehner to secure $38 billion in spending reductions last week — far steeper cuts than Democrats initially had been willing to concede — they have emboldened House Republicans, particularly those allied with the tea party, to seek more concessions next time when the stakes are higher.

“The tea partyers held the House Republicans hostage, and the House Republicans held the rest of the government hostage,” said Robert Reich, labor secretary under President Bill Clinton. “We can expect a repeat performance. Once you pay off hostage takers, there’s no end to how many times they’re going to demand more and more ransom.”

Staff writer Lori Montgomery contributed to this report.

Paul Kane covers Congress and politics for the Washington Post.
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