Obama Deficit Reduction Plan

In his budget speech today at George Washington University, President Obama said that his goal was to cut the federal debt by $4 trillion over the next twelve years, phased in over time to avoid hampering the economic recovery.

To deal with the nation’s $14 trillion deficit, Obama said he would not extend Bush-era tax cuts for high earners - set to expire at the end of 2012.

“In the last decade, the average income of the bottom 90 percent of all working Americans actually declined. Meanwhile, the top 1 percent saw their income rise by an average of more than a quarter of a million dollars each. That’s who needs to pay less taxes?” Obama said.

“They want to give people like me a $200,000 tax cut that’s paid for by asking 33 seniors to each pay $6,000 more in health costs. That’s not right, and that’s not going to happen as long as I’m president.”

But Republicans in Congress argue that job growth will suffer if Bush tax cuts expire; it’s the wealthy who create the jobs that are needed for economic growth.

House Speaker John Boehner (R-OH) said, “any plan that starts with job-destroying tax hikes is a non-starter.”

Rep. Paul Ryan (R-Wis) said, “We don’t have a problem with our budget because Americans don’t pay enough taxes. We have problems with our budget because we spend too much money.”

House Majority Leader Eric Cantor (R-Va) said, “Most people understand that Washington doesn’t have a revenue problem, it has a spending problem. We can’t raise taxes.”

Obama said that the deficit reduction he proposes will come from budget cuts of $770 billion, a cut in defense spending by $400 billion, Medicare and Medicaid reform that will amount to saving $480 billion, and tax reform that accounts for $320 billion, and “builds on the roughly $1 trillion in deficit reduction I already proposed in my 2012 budget.”

Obama’s plan calls for limits on itemized deductions for the wealthiest 2% of Americans.

Obama said, “But to reduce the deficit, I believe we should go further. And that’s why I’m calling on Congress to reform our individual tax code so that it is fair and simple -- so that the amount of taxes you pay isn’t determined by what kind of accountant you can afford.”

Also, if by 2014 the national debt hasn’t been stabilized and put on a declining path, a debt “failsafe” will trigger an across-the-board spending cut. Obama included “tax code spending” in those cuts but not Medicare, Social Security, or low-income programs.