WASHINGTON (Reuters) - The Obama administration sought to counter Republican charges on Friday that President Barack Obama’s plan to avoid a year-end “fiscal cliff” is light on spending cuts and too reliant on tax increases.
Administration officials said the overall plan, offered to Republicans on Thursday and quickly rejected by them, would achieve $4.5 trillion in savings to the government. This includes around $1 trillion in cuts already enacted into law and would set up an “expedited process” to spirit through Congress some of the most comprehensive legislation in decades.
The plan, which Treasury Secretary Timothy Geithner outlined to Republican congressional leaders, is aimed at taking a big step toward comprehensive reform of the U.S. tax code and overhauling federal programs like Medicare by next August 1, according to a summary provided by administration officials.
The fate of the administration proposals is uncertain, as they are now part of a mix of offerings to be hashed out over the next few weeks and beyond, aimed at heading off a package of automatic tax increases and spending cuts that would tip the U.S. economy over the fiscal cliff and back into recession.
Senate Minority Leader Mitch McConnell outlined his ideas for cutting entitlement programs in a Wall Street Journal interview Friday, while House Republicans said talks had basically arrived at a stalemate at this juncture.
The administration’s proposals for next year, when combined with some immediate savings such as taxing the rich at a higher rate, would raise approximately $1.5 trillion in new revenues. Those would be coupled with about $2.4 trillion in spending cuts, according to the officials who asked not to be identified.
Some of those proposed spending cuts are controversial. For example, they count $800 billion in savings from the wars in Iraq and Afghanistan that are winding down. Many Republicans in Congress argue that sound budgeting should not allow for counting savings on money that was not going to be spent.
The war savings were part of previous deficit-reduction negotiations that failed in 2011.
Administration officials disclosed details of the White House proposal in an effort to push back against Republicans’ characterization of it as not serious.
Without a deal, around $600 billion in steep tax increases and spending cuts would begin in January, forcing the economy into a recession, according to the Congressional Budget Office.
As expected, the White House proposal called for a two-step approach to deficit reduction.
The first step would mainly consist of letting income tax rates rise on families with net incomes above $250,000. The revenues generated would help replace the steep, automatic spending cuts to domestic programs due to kick in on January 2 if Congress and the president cannot reach a compromise.
Also included are the extension of expiring major tax breaks, such as the research and development credit.
A second deficit-reduction step, which both Republicans and Democrats have talked about at length, would give Congress time to revamp the complicated U.S. tax code and figure out how to slow the rapid growth of federal healthcare programs for the elderly and poor.
Under the scenario laid out by Geithner, the new tax provisions would become effective on January 1, 2014, according to administration officials, and are anticipated to bring in an additional $600 billion in revenues over 10 years, beyond the $950 billion from raising taxes on the rich.
Meanwhile, federal spending would be cut by $350 billion over 10 years by reforming Medicare and other unspecified health programs, the officials said. Savings of another $250 billion would be achieved by cutting subsidies to farmers and other actions.
Also tucked into the proposal, the officials said, were $200 billion in “economic growth initiatives” designed to help stimulate the sluggish economy.
This would include $50 billion in infrastructure spending, an extension of payroll tax cuts, extending unemployment benefits and funding for a mortgage refinancing program.
Additional reporting by Richard Cowan; editing by Fred Barbash and Todd Eastham