President Obama drew a sharp political and ideological battle line with his Republican and conservative critics Monday morning by unveiling a plan for an additional $3 trillion of deficit reduction over the coming decade that would include both spending cuts and tax increases. And he vowed to veto any legislation that seeks to cut the deficit through spending reductions alone.
In a Rose Garden speech laden with rhetorical challenges to House Speaker John Boehner of Ohio and other Republicans opposed to any tax increase to either slow the rate of growth of the $1.5 trillion annual deficit or help jumpstart the moribund economy, Obama said that wealthy Americans and corporations must pay their fair share of taxes in addressing the nation’s daunting fiscal and economic problems.
“I will not support any plan that puts all of the burden for closing our deficit on ordinary Americans, and I will veto any bill that changes benefits for those who rely on Medicare but does not raise serious revenues by asking the wealthiest Americans and the biggest corporations to pay their fair share. We are not going to have a one-sided deal that hurts the folks who are most vulnerable.”
Obama released the details for his plan for $1.5 trillion in tax increases, primarily on wealthy families making more than $250,000 a year, through a combination of letting the Bush-era tax cuts expire, closing loopholes and limiting the amount that high earners can deduct. The president called on the congressional “Super Committee” charged with recommending additional deficit savings, to undertake comprehensive tax reform that would lead to lower tax rates, eliminate wasteful tax breaks, reduce the deficit, boost job creation, and force people making more than $1 million a year to pay the same higher effective tax rate as middle-class families.
The proposal also includes $570 billion in adjustments to health and entitlement programs, including $248 billion to Medicare and $72 billion to Medicaid, and other mandatory programs. Administration officials said that the Medicare cuts would not come from an increase in the Medicare eligibility age, which is currently 65, while the politically sensitive Social Security program would be left unscathed.
The long-term deficit-reduction strategy follows closely on the heels of the president’s call for $450 billion of tax incentives and spending to help stimulate the economy and reduce the 9.1 percent unemployment rate. The president stressed that government investment in job creation and long-term debt reduction must go hand in hand, and that his deficit-reduction strategy calls for two dollars of spending cuts for every one dollar of new revenues.
Liberal and progressive groups generally applauded Obama’s “balanced” approach to job creation and deficit reduction, but GOP leaders quickly responded with distain: “Veto threats, a massive tax hike, phantom savings, and punting on entitlement reform is not a recipe for economic or job growth—or even meaningful deficit reduction,” Senate Republican Leader Mitch McConnell of Kentucky said in a statement. “The good news is that the Joint Committee is taking this issue far more seriously than the White House.”
Conservative Sen. Pat Toomey, R-Pa., a member of the select House-Senate committee that will recommend $1.5 trillion or more of deficit reduction later this fall, said: “I am concerned that [Obama’s] deficit-reduction strategy sometimes seems more defined by political posturing, such as recycling tax hikes that even lawmakers in his own party have publicly opposed. With the Select Committee’s deadline looming, we do not have time to waste on political games and pushing big tax increases that will only make our economy weaker for all Americans.”
The president’s comprehensive proposal pits Obama against Boehner, who just last week said the Republican party would not accept any tax increases and encouraged the bipartisan 12-member Super Committee to focus on reducing entitlement programs including Medicare, Medicaid and Social Security.
“This administration’s insistence on raising taxes on job creators and its reluctance to take the steps necessary to strengthen our entitlement programs are the reasons the president and I were not able to reach an agreement previously, and it is evident today that these barriers remain,” Boehner said in a statement.
In his speech, Obama referenced his private negotiations with Boehner over raising the debt ceiling during the summer and blamed the speaker for walking away from a $4 trillion “balanced package” or “grand bargain.” After those talks collapsed, the White House and Republicans agreed to nearly $1 trillion in deficit reductions in the coming decade and the creation of the Super Committee to seek additional savings of at least $1.2 trillion. “What we agreed to instead wasn’t all that grand, but it was a start,” Obama said.
House Budget Committee Chairman Paul Ryan, R-Wis., angry that Obama was trying to portray the Republicans as the party of the wealthy and Big Business, said over the weekend on Fox Sunday that “Class warfare…may make for really good politics but it makes a rotten economics. We don't need a system that seeks to divide people.”
GOP leaders have warned that any increases in taxes would discourage corporations and business leaders from expanding and hiring new workers and that Obama was provoking “class warfare” by trying to pit middle- and lower-income Americans against the well-to-do. Currently, many managers of hedge funds and investment partnerships hold what is known as carried interest in their investments and receive much of their compensation through the appreciated value when those assets are sold. Those gains are taxed at the capital-gains rate of 15 percent, but Obama wants to tax them at the regular income tax rate of as much as 35 percent.
“I reject the idea that asking a hedge fund manager to pay the same tax rate as a plumber or a teacher is class warfare,” Obama said. “I think it’s just the right thing to do. I believe the American middle class who have been pressured relentlessly for decades believe it’s time that they were fought for as hard as the lobbyist and some lawmakers have fought to protect special treatment for billionaires and big corporations.”
“Nobody wants to punish success in America,” he added “All I’m saying is that those who have done well, including me, should pay our fair share in taxes to contribute to the nation that made our success possible. We shouldn’t get a better deal than ordinary families get. And I think most wealthy Americans would agree if they knew this would help us grow the economy and deal with the debt that threatens our future.”
Part of Obama’s plan includes $250 billion in savings from other mandatory spending programs in the federal budget; $33 billion will come from cuts to agriculture subsidies, payments, and programs. “We will reform agriculture subsidies—subsidies that a lot of times pay large farms for crops that they don’t grow,” Obama said.
It’s estimated that the federal government spends $20 billion a year in Agriculture Department commodity payments, crop insurance, credits, and other programs aimed at stabilizing the agricultural industry.
Cutting farm subsidies, long a target of budget-cutters, did not go over well with some Democrats who represent rural farming areas. Senate Budget Committee Chairman Kent Conrad, D-N.D., said: “It is unfortunate the plan calls for larger agriculture cuts than are necessary or appropriate and which could undermine our ability to develop an effective Farm Bill. Everyone has to contribute to deficit reduction, but we should not be asking farmers and ranchers to bear a disproportionate share of the burden.”
Some progressive Democratic groups hailed the president’s approach. “There is little disagreement among Americans over the need for long-term federal deficit reduction,” Michael Ettlinger and Michael Linden, economic and tax experts for the Center for American Progress, said in a blog post. “We cannot maintain all of our current spending and tax policies without accumulating a dangerous level of debt. On this, nearly everyone—left, right, and center—agrees. The differences are over the best ways to reduce the deficit, who should bear the burden, and how quickly we should be moving to reduce the deficit given the current jobs crisis. The plan released today by President Barack Obama offers a balanced plan that stands in stark contrast to the extreme vision embodied in the budget resolution passed this spring by Republicans in the House of Representatives.
But the conservative Heritage Foundation blasted Obama’s plan, saying that taxing the nation’s job creators and families making $250,000 or more “would kill hundreds of thousands of job.” The foundation added in a statement that “This plan doubles down on a spending strategy that has failed to get Americans back to work,” adding that a better strategy would be to cut federal spending, lower corporate tax rates, and roll back government regulations.