On Monday, President Obama formally introduced his much-anticipated and highly ambitious deficit-reduction plan. The plan aims to use a combination of tax increases, entitlement cuts, and reductions in defense spending to reduce the country’s massive deficit by about $3 trillion over the next ten years. The plan will serve as the administration’s first step towards deficit-reduciton negotiations set for the next two months between a joint House-Senate committee. Simultaneously, Monday morning’s forum allowed the president to outline, in detail, how he plans to finance the recently introduced American Jobs Act.
Before running through the plan’s logistics, Mr. Obama took his time to explain how the country has reached this point. “During this past decade, profligate spending in Washington, tax cuts for multi-millionaires and billionaires, the cost of two wars, and the recession turned a record surplus into a yawning deficit, and that left us with a big pile of IOUs,” he described. The president stressed the importance of acting now so as to avoid placing the country’s heaviest burdens on “our children’s shoulders.” Continuing with this, he also said, “If we don’t act, the growing debt will eventually crowd out everything else, preventing us from investing in things like education, or sustaining programs like Medicare.”
Already the most talked about component of the proposal, the president has called for approximately $1.5 trillion in tax increases, mainly for the wealthiest Americans. This provision have prompted some Republicans, including House Speaker John Boehner, to accuse the president of engaging in “class warfare.” Acknowledging these accusations, the president responded sharply, saying, “This is not class warfare. It’s math.” Given the rest of his address, it seemed as though Mr. Obama meant to suggest that the tax increases are not so much “math” as “common sense.” Speaking in this strain often, the president defended his proposal as one that will “achieve these savings in a way that is fair.”
To increase tax revenues, the president’s proposal features an elimination of tax loopholes that, for the most part, benefit both the wealthiest individuals and biggest corporations. If he gets his way, Mr. Obama will have the wealthiest citizens paying taxes at rates extremely similar to those of the Clinton Administration in the ’90s – the last time the U.S. experienced a budget surplus. The president was somewhat defensive at this stage of his speech, explaining that he understands no one looks forward to the idea of increased taxes. However, according to the president, we can no longer afford Bush-era has cuts “when we’re running these big deficits.” Summing up his approach to tax reform, Mr. Obama went on to say that “middle-class families shouldn’t pay higher taxes than millionaires and billionaires. That’s pretty straightforward. It’s hard to argue against that. Warren Buffett’s secretary shouldn’t pay a higher tax rate than Warren Buffett. There is no justification for it.”
Although the proposed tax increases are certainly the most headline-grabbing elements of the president’s Monday address, they are by no means Mr. Obama’s only approach regarding deficit reduction.
“We reform agricultural subsidies – subsidies that a lot of times pay large farms for crops that they don’t grow. We make modest adjustments to federal retirement programs. We reduce by tens of billions of dollars the tax money that goes to Fannie Mae and Freddie Mac. We also ask the largest financial firms – companies saved by tax dollars during the financial crisis – to repay the American people for every dime that we spent. And we save an additional $1 trillion as we end the wars in Iraq and Afghanistan,” he explained.
Finally, the president also listed Medicare and Medicaid as areas that can help contribute to the success of his proposal through structural reforms that will reduce the cost of both programs. Specifically, these reforms will reduce wasteful subsidies and “erroneous” payments.
As his speech wound down, Mr. Obama summed up his remarks, saying “It’s our responsibility to do what’s right for the future…It’s about whether we are, in fact, in this together, and we’re looking out for one another…It’s time to do what’s right.”
Time, as always, will tell whether the president’s idea of “what’s right” is shared by those sitting on the joint House-Senate committee.
