Obama offers $3.6 trillion deficit plan, would up taxes

WASHINGTON Mon Sep 19, 2011 7:51pm EDT

1 of 6. President Barack Obama talks about cutting the U.S. deficit by raising taxes, from the Rose Garden of the White House in Washington, September 19, 2011.

Credit: Reuters/Jason Reed

WASHINGTON (Reuters) - President Barack Obama laid out a $3.6 trillion plan on Monday to cut budget deficits partly by raising taxes on the rich, but Republicans rejected it as a political stunt and made clear the proposal has little chance of becoming law.

Vowing to veto any plan that relies solely on spending cuts to reduce deficits, the Democratic president's recommendations set the stage for an ideological fight with Republicans opposed to tax increases that will stretch through Election Day 2012.

"I will not support any plan that puts all the burden of closing our deficit on ordinary Americans," Obama said. "We are not going to have a one-sided deal that hurts the folks who are most vulnerable."

Obama's speech reflected a more aggressive defense of Democratic principles after he took a battering in two previous budget battles with Republicans this year, which helped drive his approval rating to new lows.

Most Americans say they are unhappy with Obama's economic leadership, and the president's re-election hopes could hinge on his ability to convince voters that Republicans represent the rich, not the middle class.

On Monday, he repeatedly said all Americans must pay their "fair share" of taxes, and he sharpened the difference between his vision for America and that of Republicans in a speech meant to regain support among core supporters who have said Obama has failed to stick to liberal principles.

Republicans have consistently opposed any measures resembling tax hikes, saying they will hurt the struggling economy by increasing the burden on job-creating businesses. Republican leaders stuck to that position on Monday, quickly rejecting Obama's plan.

"Veto threats, a massive tax hike, phantom savings, and punting on entitlement reform is not a recipe for economic or job growth," said Republican Senate leader Mitch McConnell.

John Boehner, speaker of the House of Representatives and the top Republican in Congress, said in a speech in Ohio that "class warfare" was not leadership and taxing rich would not get the economy going again, Cincinnati media reported.

"Giving the federal government more money would be like giving a cocaine addict more cocaine," Boehner said in a speech to small business owners at the University of Cincinnati.

POLITICS, BUT A PLAN?

Analysts were skeptical Obama's plan would help America's standing with credit rating agencies such as Standard & Poor's, which last month downgraded government debt and voiced concern Washington was too divided to tackle the problem.

Obama's plan, which will be sent to the "super committee" of six Republicans and six Democrats considering deficit reduction, proposes $3.6 trillion in savings over 10 years.

These include cuts to Medicare spending aimed mainly at healthcare providers, particularly big drug companies, prompting some hospital stocks to fall sharply on Wall Street.

But roughly half of overall savings come from higher tax revenues, under the president's proposal.

That would include allowing tax breaks for upper income Americans to expire at the end of 2012, capping popular deductions for things like mortgage interest and charitable donations, and closing corporate tax loopholes.

"This is purely politics, aimed at Obama's demoralized base. It undoubtedly has been poll-tested, so now Obama has a populist campaign issue. There's obviously no chance this could pass" on a vote in Congress, said Greg Valliere, chief political strategist at consultancy Potomac Research Group.

Rudolph Penner, a former director of the Congressional Budget Office, said rating agencies would not be impressed by Obama's failure to recommend deeper healthcare cuts.

"If I were S&P I would not change my rating on the basis of this proposal," he said.

"BUFFETT RULE"

Obama's call to overhaul the U.S. tax code included a "Buffett Rule," named after billionaire investor Warren Buffett, that would set a minimum tax rate for people earning more than $1 million a year.

It would only impact a tiny minority of the millions of Americans filing tax returns. But Obama aides say it would set a standard of fairness that would boost revenue if applied.

While critics derided Obama's plan as purely political, some analysts saw a sober bid to tackle big fiscal problems.

"Obama's new plan is both a serious legislative proposal and an effort to stake out his ground for his re-election campaign," said Sarah Binder of The Brookings Institution.

The super committee must propose a deficit plan by November 23. Congress must then vote on the panel's proposal by December 23 or automatic spending cuts will be triggered across government agencies, beginning in 2013.

It will meet behind closed doors on Tuesday for its first deliberative meeting. "Presumably we are going to start throwing some ideas out," said Republican Senator Jon Kyl, a panel member.

Obama said his plan, together with savings agreed under an August debt ceiling deal, will cut over $4 trillion from the 10-year deficit, helping deflect Republican claims he is a "tax and spend liberal" that have hurt him with independent voters.

Obama's suggestions do not raise the eligibility age for Medicare recipients, something he proposed during debt ceiling negotiations with Boehner over the summer.

Instead, he is proposing something more palatable to the left wing of his party -- $248 billion in savings from Medicare, the government health program for the elderly.

Most of that would come from reducing overpayments to health care providers. The news hit shares in hospital operators.

Medicare and Medicaid are viewed by analysts as the biggest contributors to long-term U.S. deficits, a driving issue in the election. The U.S. budget deficit in 2011 is expected to be about $1.3 trillion.

(Additional reporting by Kevin Drawbaugh, Richard Cowan, Deborah Charles, Kim Dixon, Donna Smith, Malathi Nayak, Tim Reid, Jason Lange and David Morgan, Editing by Doina Chiacu and Cynthia Osterman)

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Comments (147)
doggydaddy wrote:
Good for Obama. Let’s hope he fights for it. We need to have a tax structure that is just a tad closer to what it was during our better days when America was the envy of the world, the tax structure we had during what is often referred to as the Greatest Generation, the WWII generation. Forget the labels and the emotionally driven psychological propaganda games that the corporate plutocrats will attempt to pull over on us. Just look at the facts. Just look at what we KNOW works; not what some corrupt politician tell us. He or she is receiving campaign contributions in exchange for telling us that raising taxes on the rich is bad.

The United States was much better off all around when taxes were higher on the rich. We’ve since tried trickle-down economics and we now know unequivocally that it doesn’t work. We’ve been experiencing a decline ever since. And Obama isn’t proposing that we go back to the same type of tax structure we had back during those better times. He’s just proposing that we take one small incremental step back in that direction. It’s only logical.

Sep 18, 2011 10:41pm EDT  --  Report as abuse
actnow wrote:
Uh….what about spending? I’m one of the 53% of American households that actually pays Federal tax, and I pay 40% of my gross pay in combined taxes. I’ve had enough! Cut spending Mr. President. Socialism doesn’t work….look at Western Europe.

Sep 18, 2011 11:04pm EDT  --  Report as abuse
doggydaddy wrote:
actnow: Half of what Obama’s proposing is in spending cuts. And as far as Western Europe is concerned, it depends on which countries you’re referring to. Norway, for example, has an unemployment rate of 3.6 (2010 figures) and their government has a balanced budget. In fact, they have a surplus. They also have a much lower infant mortality rate and a higher life expectancy. They also have a universal, tax-funded healthcare system. People are allow to opt out and pay out-of-pocket if they so choose. 100% of Norwegians are covered by their healthcare system.

Where it’s true that not all European nations are doing as well as Norway, (Greece and Ireland, for example), but there are several others holding up quite well, and better than the US, and they all have some form of universal healthcare, NONE have the disparity in wealth that the US now has, and taxes do tend to be higher, and everyone pays taxes.

Since you seem to be suggesting that raising taxes on the rich amounts to socialism, I’m assuming you consider Norway to be socialist. You stated that socialism doesn’t work, but obviously, it’s working pretty well for Norway. Arguably better than our form of capitalism: lower unemployment; a high standard of living; lower infant death mortality rate; higher life expectancy; a balanced budget; negligible poverty; good schools; a more equitable wealth distribution; and everyone has health insurance. It’s really hard to argue that our system works and theirs doesn’t.

Sep 18, 2011 11:45pm EDT  --  Report as abuse
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