President Barack Obama unveiled his deficit reduction plan last week, calling for a mix of spending reductions and tax hikes that the White House claims would cut federal deficits by $4 trillion over the next 12 years without gutting popular programs such as Medicare and Medicaid, a challenge that may be difficult to achieve given the level of debt in the U.S.
Obama’s plan calls for a repeal of the Bush-era tax cuts on families making more than $250,000 annually. The president also called for the creation of a “debt fail-safe” trigger that would impose automatic across-the-board spending cuts and tax changes in coming years if annual deficits are on track to exceed 2.8% of the nation’s gross domestic product.
The president claimed that by building on or adjusting the healthcare reform bill passed last year, $480 billion would be saved by 2023, followed by an additional $1 trillion in the following decade. For example, he proposed tightly constraining the growth in Medicare costs starting in 2018.
Obama’s plan sought to carve out a political middle ground between conservatives – who are pushing for deficit reduction based solely on spending cuts and expected economic growth – and liberals, who generally resist any entitlement reform, instead seeking higher corporate and personal taxes.
President Obama’s plan contrasts markedly with the House Republican 2012 budget proposal, a nonbinding plan that calls for cutting $6.2 trillion over the next 10 years (the Senate has not unveiled its plan yet).
The plan, devised by Budget Committee Chairman Rep. Paul Ryan (R-Wisconsin), proposes transforming Medicare from a program in which the government directly pays medical bills into a voucher-like system that subsidizes purchases of private insurance plans. People 55 and over would remain in the current system, but younger workers would receive subsidies that would likely lose value over time.
Predictably, the GOP’s solution to unsustainable deficits ignores the necessity of tax increases to accompany the proposed deep spending cuts, particularly for the wealthiest people in the U.S. It leaves Bush-era revenue levels intact and calls for tax reform that would lower the top income tax rates for corporations and individuals and ignoring the bipartisan deficit commission’s recommendations that $100 billion a year in new revenues be devoted to easing the deficit.
So it appears that Democrats still want to hold onto their vision of social utopia no matter what the cost and Republicans want to continue to give tax breaks to the wealthiest people and corporations, even when they haven’t been shown to provide any meaningful jobs in the U.S. in the decade since they were enacted. Nothing changes, and yet things cannot stay the same any longer. It’s time to try something different in Washington.
Ultimately, both parties will have to compromise to get anything done on the deficit. The last time I checked, neither party has enough votes to get their way outright. Can meaningful deficit reductions be made without gutting government healthcare programs?