President Barack Obama vowed to cut $4 trillion in cumulative deficits within 12 years through a combination of spending cuts and tax increases, setting the stage for a fight with congressional Republicans over the nation’s priorities.
In presenting his long-term plan for closing the budget shortfall, Obama set a target of reducing the annual U.S. deficit to 2.5 percent of gross domestic product by 2015, compared with 10.9 percent of GDP projected for this year. He reiterated his support for overhauling the tax code to lower rates while closing loopholes and ending some breaks to increase revenue.
“We have to live within our means, reduce our deficit, and get back on a path that will allow us to pay down our debt,” Obama said in a speech today at George Washington University in the capital. “And we have to do it in a way that protects the recovery.”
Over the next five years, the administration forecasts the government will pile up a cumulative deficit of $3.8 trillion; over the decade, the cumulative deficits would rise to $7.2 trillion. With today’s proposal, Obama is going beyond the fiscal 2012 budget he presented on Feb. 14, which forecast cutting the deficit by $1.1 trillion over a decade.
As with his budget, Obama called for ending the Bush-era tax cuts for the wealthiest Americans, which are set to expire in 2012. “I refuse to renew them again,” he said.
To achieve his new goals, the president is urging Congress to pass a “debt failsafe” that would trigger across-the-board spending cuts and tax changes if the debt-to-GDP ratio hasn’t stabilized by 2014, according to an administration fact sheet. The automatic cuts wouldn’t apply to entitlements, including Social Security, Medicare, and programs intended for low-income Americans.
Obama would target government spending, from the Pentagon to the Department of Agriculture. He proposes saving $400 billion in current and future defense spending and called for a “fundamental review” of U.S. military missions.
Most U.S. stocks fell as Obama’s plan overshadowed a rally in technology companies triggered by optimism about earnings. Defense contractors were among the biggest decliners. Lockheed Martin Corp. (LMT) was down 2.5 percent at 2:53 p.m. Raytheon Co. (RTN) fell 2.6 percent, General Dynamics Corp. (GD) declined 1.2 percent, and Boeing Co. (BA) was down 1.3 percent.
Signaling the political fight his plan faces, Republican congressional leaders said after getting briefed by the president that they won’t accept tax increases as part of a deficit-cutting plan.
The president “heard us loud and clear” on the tax issue, House Speaker John Boehner of Ohio told reporters after the White House meeting. “If we are going to resolve our differences and do something meaningful, raising taxes will not be part of that.”
Most of the reductions proposed by Obama will be phased in to the second half of the 12-year timeframe, to avoid stifling the economic recovery, according to the White House.
The president borrowed some ideas from the Simpson-Bowles debt commission he created last year, drawing on the co- chairmen’s recommendation for a simpler, fairer tax code that lowers rates and increases revenue. He also adopted the recommendations on non-security discretionary spending, saving $770 billion by 2023.
“If our creditors start worrying that we may be unable to pay back our debts, it could drive up interest rates for everyone who borrows money, making it harder for businesses to expand and hire,” Obama said in his prepared remarks.
The administration is aiming to provide a counterpoint to the budget plan released last week by Representative Paul Ryan, which relies on deep cuts in federal spending to trim the deficit. Obama rejected the Wisconsin Republican’s idea of a voucher-like system for future Medicare recipients.
While calling for Republicans and Democrats to come together and saying said both sides share the “worthy goal” of cutting debt, Obama said the Republican plan “would lead to a fundamentally different America than the one we’ve known, certainly in my lifetime.”
He also was critical of the policies pursued under his predecessor, former President George W. Bush. Without naming Bush, Obama said that after the government brought down the deficit and turned to a budget surplus by the end of the 1990s, “we lost our way in the decade that followed.”
“We increased spending dramatically for two wars and an expensive prescription-drug program, but we didn’t pay for any of this new spending,” he said. “Instead, we made the problem worse with trillions of dollars in unpaid-for tax cuts — tax cuts that went to every millionaire and billionaire in the country.”
A broad group of Senate Republicans and Democrats has been pressing Obama to endorse a goal of cutting the deficit by at least $4 trillion, in line with the plans by the debt panel and Ryan.
The recommendations from the debt commission’s co-chairmen, former Senator Alan Simpson, a Republican from Wyoming, and former Clinton administration official Erskine Bowles, a Democrat, both of whom were at the speech, would cut almost $4 trillion over the period. Both used a combination of spending cuts and higher revenue.
Ryan’s plan would cut the deficit by $4.4 trillion over 10 years, primarily through reductions in federal spending. He proposes to reduce top income and corporate tax rates from 35 percent to 25 percent.
Obama lashed out at the Republican proposal.
“There’s nothing serious about a plan that claims to reduce the deficit by spending a trillion dollars on tax cuts for millionaires and billionaires,” he said. “And I don’t think there’s anything courageous about asking for sacrifice from those who can least afford it and don’t have any clout on Capitol Hill.”
Ryan, chairman of the House Budget Committee, said today his party could work with Democrats to hammer out a plan to shore up Social Security in time for a looming vote on the nation’s debt limit.
“We disagree on the area of healthcare reform,” he said in an interview. “But on Social Security, from just listening to the various Democrats and Republicans around here, we’re not worlds apart.”
Asked if he believed Obama’s speech was in reaction to his own budget plan, Ryan said: “I do find the timing of him feeling the need to do a budget speech after we put our budget out probably more than a coincidence.” He added, “we’re leading where he hasn’t.”
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