President Barack Obama on Monday unveiled his plan for deficit reduction which calls for roughly $3 in tax increases for every dollar in spending that’s cut.
The new plan comes on top of the $1.2 trillion in defense and discretionary spending reductions that were agreed to by Democrats and Republicans in August of this year. Another $1.1 trillion in savings would be achieved by ending the wars in Afghanistan and Iraq. With these cuts, the government would have to borrow less than was previously projected and “save” $430 billion in interest payments.
The White House argues that its latest proposal achieves $4.4 trillion in deficit reduction over the next ten years which may be enough to close the fiscal gap by 2021. The nonpartisan Congressional Budget Office previously expected a $6.7 trillion shortfall for the next decade but revised that projection downward to $3.5 trillion after Congress enacted the aforementioned $1.2 trillion in cuts as part of a broad bipartisan agreement that also demanded long-term cuts in welfare spending.
Driving the CBO’s deficit projections are expansive public health-care support and retirement programs. By 2021, more than half of federal spending would have to be allocated to Medicaid, Medicare and Social Security alone. Along with defense, interest payments and unemployment insurance, it would be nigh impossible for the federal government to continue to finance education and other domestic programs unless taxes were raised substantially.
The bulk of the president’s new deficit reduction effort would be realized through tax increases. Obama called for almost $450 billion in tax hikes to offset increased education and infrastructure spending almost two weeks ago when he presented an American Jobs Act to Congress that was designed to combat America’s high, 9.1 percent unemployment rate.
On Monday, he reiterated his vow to raise the top income tax rate to what it was when Bill Clinton was president. The actual spending reductions he unveiled would amount to $580 billion over the next ten years and include adjustments to entitlements and eliminate overpayments and waste in Medicaid and Medicare.
The president threatened to veto any measure that would change Medicare benefits if it did not also raise taxes on the wealthy.
Opposition lawmaker had taken aim at the president’s proposal to raise taxes the day before when House budget committee chairman Paul Ryan, who designed the Republican plan to privatize health support for seniors, denounced the exercise as “class warfare.”
The president rejected that characterization on Monday, suggesting that the tax increases were necessitated by simple math. “The money’s got to come from some place,” he explained.
The Republican leader in the Senate, Mitch McConnell, warned that his party could not submit to a plan that would “stagnate” the economy by raising taxes. “The way you get more revenue,” he told NBC’s Meet the Press this weekend, “is getting the economy going.” To do that, McConnell urged faster deficit reduction and deregulation.
With a conservative majority in the House of Representatives, Obama’s jobs legislation and tax hikes are unlikely to be enacted. His plan clearly differs from what Republicans believe is necessary to revitalize the economy. They also proposed $4.4 trillion in deficit reduction last April which they would accomplish largely by reining in Medicaid and Medicare expenditures while lowering corporate and top income tax rates to stir investment and job creation.
The president at the time complained that the Republican plan would lead to a “fundamentally” different country than he envisages. “These are the kind of cuts that tells us we can’t afford the kind of America that I believe in,” he declared. Whether that’s the kind of America that most Americans believe in will be decided in November of next year when the country holds congressional and presidential elections.
Despite the president’s push for another stimulus and major tax increases, few political observers expect any meaningful legislation to pass Congress before next year’s electoral contest is decided. The Democrat’s notion of “shared sacrifice” versus the Republicans’ insistence that no taxes be raised at a time of lackluster economic growth will probably take center stage in the upcoming election fight.