Obama Said to Call for Cuts in Entitlements, Higher Taxes on Wealthy

Tuesday, 12 Apr 2011 03:02 PM

 

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President Barack Obama will call tomorrow for a combination of reductions in entitlement spending and tax increases on higher-income Americans to address long-term fiscal debt while drawing a sharp contrast with the Republican alternative proposed by Representative Paul Ryan, according to a person familiar with the plan.

Obama’s proposal will draw on the findings of the Simpson-Bowles debt commission chairmen who said tax increases had to accompany spending reductions. He will also specifically reject Ryan’s idea of a voucher-like system for future Medicare recipients, the person said.

The president also will try to align his plan with the objectives of the so-called Gang of Six, a group of three Republican and three Democratic senators working on their own recommendations. That plan is not expected to be released until after a two-week congressional recess scheduled to begin next week, according to people familiar with the negotiations.

Obama’s address on federal debt, to be delivered tomorrow afternoon at George Washington University in the capital, comes as he’s preparing for a fight with congressional Republicans over raising the government’s debt limit and trying to set the debate for the 2012 presidential campaign.

While refusing to release details about what the president will say, White House officials have offered hints of the direction he’ll take.

“You can’t simply slash entitlements, lower taxes, and call that a fair deal,” Obama’s spokesman, Jay Carney, said yesterday.

Themes in Budget

Many of the themes he’ll hit reflect those contained in his Feb. 14 budget plan for fiscal 2012, including increasing the top income tax rates and closing loopholes in the tax code. It also will draw on recommendations from the bipartisan presidential commission headed by former Senator Alan Simpson and former Clinton administration official Erskine Bowles.

While Obama’s budget charted a path to cutting the deficit by $1.1 trillion over a decade, the commission’s plan 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 deep cuts in federal spending. Ryan, of Wisconsin, proposes to reduce top tax rates.

The Obama administration projects a record $1.65 trillion deficit this year, declining to $1.1 trillion next year largely on an outlook for an improved economy and increased tax collections.

Over the next five years, the government is forecast to pile up a cumulative deficit of $3.8 trillion; over the decade, the cumulative deficits would rise to $7.2 trillion, according to the president’s budget.

Entitlement Fight

Along with taxes, Obama is setting up a fight over entitlements. Ryan would phase out the traditional Medicare program for the elderly and replace it with subsidies to buy private insurance. It would cap spending on Medicaid, the health-care plan for the poor.

Obama will address some specific changes to Medicare tomorrow, using some of the recommendations in the Bowles- Simpson plan as a template, according to one person familiar with White House discussions.

The commission recommended that the Health and Human Services Department expand accountable care organizations that reward doctors based on performance as quickly as possible and use a new payment formula for physicians.

“The fiscal commission showed that you need to look at entitlements, you need to look at tax expenditures, you need to look at military spending,” Carney said. “You need to look at all of these issues.”

Bond Market

For all the concern about the deficit in Washington, in the bond market, yields in the U.S. are lower now than when the government was running a budget surplus a decade ago even though Treasury Department data show that the amount of marketable debt outstanding has risen to $9.13 trillion from $4.34 trillion in mid-2007.

The yield on the benchmark 10-year Treasury note was at 3.53 percent today, below the average of 7 percent since 1980 and compared with the average of 5.48 percent in the 1998 through 2001 period, according to Bloomberg Bond Trader prices.

Low borrowing costs mean the U.S. is spending less to service its debt as a percentage of gross domestic product. Interest expense was 2.7 percent of gross domestic product in fiscal 2010 ended Sept. 30, down from 3.8 percent in 2001, the last time the U.S. had a budget surplus, according to data compiled by Bloomberg.

Leadership Issue

Andy Stern, former head of the Service Employees International Union and a member of the president’s debt commission, said that Republicans have been driving the debate over long-term deficit reduction. While Obama has been late to the debate, the speech provides an opportunity to reclaim leadership on the issue, he said.

“I would have certainly preferred that this debate began on Dec. 1 with the president’s leadership when the commission actually reported, that his budget would have been a follow-up and we could have avoided the Republicans being seen as driving this debate,” Stern said in an interview.

Stern, who hasn’t consulted with the administration ahead of tomorrow’s speech, said he doesn’t expect the president to offer a deeply detailed proposal for lawmakers to consider. Any legislation will still need to be crafted in the halls of Congress, he said.

“I don’t think you need a full scale budget,” Stern said. “People need to understand what is the framework.”

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