Obama Calls for Tax Increases, Health Savings in Budget

The president’s plan would raise the national debt to $19 trillion in ten years.

President Barack Obama unveiled a budget plan the for fiscal year 2014 on Wednesday that would reduce the deficit to $744 billion, down from an estimated $973 billion this year. The Republican majority in the House of Representatives is highly unlikely to accept it, however, because it includes tax increases while members of the president’s own Democratic Party are unhappy about proposed pension cuts.

The American president proposes to raise taxes on incomes over $1 million to at least 30 percent and increase infrastructure spending $167 billion, in part financed by “savings” from ending the wars in Afghanistan and Iraq that opposition Republicans say shouldn’t be counted because the money wasn’t supposed to be spent anyway.

Their spending plan, by contrast, put out last month, achieves $4.6 trillion in deficit reduction over ten years without raising taxes.

The most controversial reform plan in the Republicans’ budget is an overhaul of Medicare, a health-care entitlement for seniors, that would give recipients the choice of buying subsidized private insurance over direct government financing. Democrats allege that this would effectively end the Medicare system.

The president’s budget seeks $400 billion in health savings over ten years, largely by standardizing reimbursement rates across Medicare and Medicaid, the program that pays health care for the poor. It also proposes to increase Medicare premiums for wealthy seniors after 2017, generating an additional $50 billion in ten year savings, and reductions in pension payments.

Neither plan is likely to receive strong support from Democrats who have pledged to defend the “bedrock” promises of social insurance programs while Republicans believe the president’s reforms do not go far enough.

Rising health-care costs are the main drivers of long-term deficit projections. Medicare spending is expected to increase $300 billion over the next ten years before the fund falls into deficit in 2024. Medicaid will spend up to $434 billion more during the same period, in part because the president’s own health reform law put twenty million more Americans on it, making it increasingly difficult for the states, which are responsible for Medicaid payments, to continue to finance education, infrastructure and public safety services besides. Already, Medicaid is often their single largest budget item and crowding out other spending commitments.

Senate Democrats’ budget plan, also introduced last month, made no structural changes to Medicare and Medicaid. Rather it promised $265 billion in efficiency savings, the details of which were to be determined in future legislation.

Even if the president proposes more cuts than his party’s senators did, the national debt would rise to over $19 trillion by 2023 under his plan, compared to $18.2 trillion, or 70 percent of gross domestic product, in the latter.

Under the House Republican plan, the debt, now almost $16.8 trillion, would shrink to $14.2 trillion in 2023, or 54.8 percent of GDP.