President Barack Obama laid out on Wednesday what he called “a more balanced approach” than House Republicans to reduce the nation’s burgeoning deficit by proposing a budget that would achieve $4 trillion in deficit reduction over twelve years through a four-step plan–which includes eliminating the Bush tax cuts for the wealthy.
Obama said that the budget plan offered by House Budget Committee Chairman Paul Ryan, R-Wis., is “deeply pessimistic.”
Obama said his approach to reduce the deficit borrows from the recommendations of the bipartisan Fiscal Commission that he appointed last year, and builds on the roughly $1 trillion in deficit reduction that he proposed in his 2012 budget. “It’s an approach that puts every kind of spending on the table,” Obama said in his speech at George Washington University in Washington. “But one that protects the middle-class, our promise to seniors, and our investments in the future.”
House Majority Leader Eric Cantor, R-Virginia, said after Obama’s speech that the President's plan has one "concrete" goal it achieves is "raising taxes."
Noting how dire the nation’s deficit situation is, Obama said in his speech that “even after our economy recovers, our government will still be on track to spend more money than it takes in throughout this decade and beyond. That means we’ll have to keep borrowing more from countries like China.” And, he continued, “that means more of your tax dollars will go toward paying off the interest on all the loans we keep taking out. By the end of this decade, the interest we owe on our debt could rise to nearly $1 trillion. Just the interest payments.”
Obama went on to say that as the Baby Boomers start to retire and health care costs continue to rise, “the situation will get even worse. By 2025, the amount of taxes we currently pay will only be enough to finance our health care programs, Social Security, and the interest we owe on our debt. That’s it.” Every other national priority–education, transportation, even national security–will have to be paid for with borrowed money, he said. “Ultimately, all this rising debt will cost us jobs and damage our economy. It will prevent us from making the investments we need to win the future.”
Around two-thirds of the nation’s budget is spent on Medicare, Medicaid, Social Security, and national security, Obama said. “Programs like unemployment insurance, student loans, veterans’ benefits, and tax credits for working families take up another 20%. What’s left, after interest on the debt, is just 12% for everything else. That’s 12% for all of our other national priorities like education and clean energy; medical research and transportation; food safety and keeping our air and water clean.”
Up until now, Obama continued, “the cuts proposed by a lot of folks in Washington have focused almost exclusively on that 12%. But cuts to that 12% alone won’t solve the problem. So any serious plan to tackle our deficit will require us to put everything on the table, and take on excess spending wherever it exists in the budget.”
Obama’s four-step plan to reduce the deficit is as follows:
Step One: keep annual domestic spending low by building on the savings that both parties agreed to last week–a step that will save the nation about $750 billion over twelve years.
Step two: find additional savings in the nation’s defense budget.
“We need to not only eliminate waste and improve efficiency and effectiveness, but conduct a fundamental review of America’s missions, capabilities, and our role in a changing world,” Obama said. “I intend to work with Secretary Gates and the Joint Chiefs on this review, and I will make specific decisions about spending after it’s complete.”
Step three: Further reduce healthcare spending in the nation’s budget.
“Here, the difference with the House Republican plan could not be clearer: their plan lowers the government’s health care bills by asking seniors and poor families to pay them instead. Our approach lowers the government’s health care bills by reducing the cost of health care itself,” Obama said. “Already, the reforms we passed in the health care law will reduce our deficit by $1 trillion. My approach would build on these reforms.”
Step four: reduce spending in the tax code.
In December, Obama said, “I agreed to extend the tax cuts for the wealthiest Americans because it was the only way I could prevent a tax hike on middle-class Americans. But we cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire in our society. And I refuse to renew them again.”
Beyond that, he continued, the tax code is also loaded up with spending on things like itemized deductions. And while I agree with the goals of many of these deductions, like homeownership or charitable giving, we cannot ignore the fact that they provide millionaires an average tax break of $75,000 while doing nothing for the typical middle-class family that doesn’t itemize.”
“My budget,” Obama said, “calls for limiting itemized deductions for the wealthiest 2% of Americans–a reform that would reduce the deficit by $320 billion over ten years. But to reduce the deficit, I believe we should go further.”