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Obama’s Deficit Plan Hits Opposition on Hill, But Frames 2012 Fight

September 19, 2011 at 12:00 AM EST
President Obama on Monday called for $1.5 trillion in new taxes aimed at wealthy Americans as part of a plan to reduce the deficit by $3 trillion over 10 years. Gwen Ifill discusses the proposal with Phillip Swagel of the American Enterprise Institute and Robert Greenstein of the Center on Budget and Policy Priorities.
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GWEN IFILL: The president sought today to get his ideas for reducing red ink off the ground. Republicans insisted his talk of raising taxes will never fly.

President Obama unveiled his $3.6 trillion plan to tackle the deficit by raising taxes and cutting spending in the White House Rose Garden this morning.

U.S. PRESIDENT BARACK OBAMA: We can’t just cut our way out of this hole. It’s going to take a balanced approach.

GWEN IFILL: The president’s call for balance has run into headwinds before. And he acknowledged the criticism that would greet his latest proposal.

BARACK OBAMA: Now, we’re already hearing the usual defenders of these kinds of loopholes saying, “This is just class warfare.” I reject the idea that asking a hedge fund manager to pay the same tax rate as a plumber or teacher is class warfare. I think it’s just the right thing to do.

This is not class warfare. It’s math. The money is going to have to come from someplace.

GWEN IFILL: The White House math includes $1.5 trillion in new revenues raised by allowing $800 billion in tax breaks to expire for families earning more than $250,000 a year.

It would also limit tax deductions for the wealthy and eliminate tax loopholes for big business. Republicans have objected to this approach, saying it would hurt the people who create jobs.

On the spending side, the president’s plan would cut $580 billion in costs from mandatory benefit programs, including $248 billion from Medicare and $66 billion from Medicaid.

Mr. Obama pledged to reject any Republican efforts to cut spending without raising new revenues.

BARACK OBAMA: I will not support any plan that puts all of the burden for closing our deficit on ordinary Americans.

And I will veto any bill that changes benefits for those who rely on Medicare but does not raise serious revenues by asking the wealthiest Americans or biggest corporations to pay their fair share.

GWEN IFILL: House Speaker John Boehner ruled out increasing taxes just last week.

BARACK OBAMA: So the speaker says we can’t have it “My way or the highway” and then basically says “My way or the highway.” That’s not smart. It’s not right. If we’re going to meet our responsibilities, we have to do it together.

GWEN IFILL: Both Senate Minority Leader Mitch McConnell and Mr. Boehner dismissed the president’s latest plan today as not serious.

“This administration’s insistence on raising taxes on job creators and its reluctance to take the steps necessary to strengthen our entitlement programs are the reasons the president and I were not able to reach an agreement previously,” the Speaker said in a statement. “And it is evident today that these barriers remain.”

Over the weekend, the president also floated another idea: reforming the tax code so that millionaires pay the same tax rate as their middle-class employees. The idea of taxing the rich appears to have its supporters — 56 percent of those polled by CBS News and The New York Times last week said they favor raising taxes on high wage earners to reduce the deficit.

But public opinion is no guarantee of political agreement. A special deficit reduction committee began meeting last week to come up with its own plan to find up to $1.5 trillion in deficit reductions. If they can’t come to agreement by November 23, most government agencies, including the Pentagon, would see across-the-board budget cuts.

We take a closer look now at the economics and the politics of the president’s plan with Phillip Swagel. He was assistant secretary for economic policy at the Treasury Department under George W. Bush. He’s now a visiting fellow at the American Enterprise Institute and a professor of economics at the University of Maryland. And Robert Greenstein, president of the Center on Budget and Policy Priorities, which examines budget and tax issues.

Bob Greenstein, overall, what did you think of the president’s plan?

ROBERT GREENSTEIN, Executive Director, Center on Budget and Policy Priorities: I was impressed.

This is a plan that provides measures to create jobs in the short term, but then focuses in on substantial deficit reduction as the economy recovers. It achieves the goal that every bipartisan commission over the last two years has said is the key, to get the deficit down to the point where the debt is no longer growing faster than the economy. It does it in a balanced way.

And it’s not some big liberal high-tax plan. One fact shows that. It has somewhere between half-a-trillion and three-quarters-of-a-trillion less in revenue increases than the bipartisan Bowles-Simpson commission plan and the Gang of Six plan, both of which had Republican senators endorsing them.

GWEN IFILL: Phil Swagel, what do you think about it?

PHILLIP SWAGEL, University of Maryland: Well, I thought the president’s plan is in two parts. Last week, he talked about what he wanted to do to get the economy going. There were some elements in there I liked, the tax cuts.

GWEN IFILL: The jobs speech.

PHILLIP SWAGEL: The jobs speech, the tax cuts on investment, on wages, the focus on training.

 

Today was politics. It’s not really economics. I think everyone understood what the president was doing today — and you could see from his demeanor on the piece before — it was politics. He’s kicking off his reelection campaign. It kind of puts a bit of a pall over his very useful speech I thought from last week.

GWEN IFILL: Class warfare?

PHILLIP SWAGEL: Yes, I mean, it’s not a surprise that the president is going back to that and saying let’s tax millionaires and all that.

There’s a lot of tax increases. Look, we have to change our tax code. And I agree with the president there. But he wants to do it to support higher spending. I think that’s probably the wrong approach.

GWEN IFILL: Let’s start by talking about those tax increases. What do you think.

ROBERT GREENSTEIN: Well, let me say that I very much disagree with…

GWEN IFILL: By all means.

ROBERT GREENSTEIN: He’s talking about the president’s speech.

Let’s move away from the speech and look at the something like 60-page-long detailed plan that has spending cut after spending cut. It takes on sacred cows for the Democrats. It has changes in Medicare that no Democratic president…

GWEN IFILL: Well, and I want to do that. I want to go through it piece by piece.

But let’s start by talking about the tax increases that the Republicans are so resistant to.

ROBERT GREENSTEIN: Sure.

GWEN IFILL: The president is talking about, the Republicans are saying they’re not necessary and they’re not plausible.

ROBERT GREENSTEIN: What the president proposed today is that we have a comprehensive tax reform that broadens the base and lowers the rate, but produces net savings, net increase in revenue relative to what you would get if you made all the Bush tax cuts permanent of $1.5 trillion over 10 years.

It’s actually less than the bipartisan Bowles-Simpson plan proposed. And, yes, he has specific proposals to close loopholes on hedge fund managers who pay less than their secretaries in rates and oil and gas loopholes and so forth. But he made very clear those were illustrative. He would work with Congress. What he wanted was a comprehensive reform. Lower the rates. Broaden the base.

Do it in a way that both gives us more efficient code and brings in a lot more revenue. Of course, significant share is going to have to come from people at the top for two basic reasons. A., they are right now — people that make over a million dollars a year are right now getting an average tax cut of over $100,000 a year from the Bush tax cuts.

We can’t afford that. B., a lot of the unproductive loopholes in the code are concentrated in higher-income areas, big corporations, areas where people had high-priced lobbyists. But there also are a lot of expenditure cuts that members of both parties, including Republicans who say they want to cut spending, I fear are going to not be willing to accept because those also hit special interests on the spending side.

GWEN IFILL: Well, he took a big bite. He took a big bite of the spending increases — I mean, the tax increases, and as well the spending cuts. Why don’t you do the same thing?

PHILLIP SWAGEL: OK. Sure thing.

I mean, some of the spending cuts in this proposal I think everyone understands are necessary. And he’s looking to reform the treatment of federal pensions and looking to save the Postal Service, things like that. So there is going to be some agreement.

The so-called sacred cows, I think everyone understands that Medicare has very serious challenges. And the president last week put the word modest in front of Medicare changes. Medicare doesn’t need modest changes. In some sense, the president is underselling this. He’s telling the American people, we can do modest changes and we will be fine. And I think, unfortunately, that’s not the case.

GWEN IFILL: Mr. Greenstein says that is the leaping-off point to work with Congress.

PHILLIP SWAGEL: He called it a sacred cow.

And in some sense, what the president put out today in his so-called detailed proposal are very small changes to Medicare. There’s nothing that will really change the arc of Medicare spending, which is the kind of thing you have in, say, Paul Ryan’s plan. And that to me — that is — what the most disappointing is.

GWEN IFILL: What about tax increases? How do you pay for this kind of deficit reduction without increasing taxes on somebody?

PHILLIP SWAGEL: Sure.

So, in the president’s discussions with Speaker Boehner, the news report said there’s about a 4-1 mix of spending reductions against revenue increases. And the revenue increases were things that both sides agreed on, changing deductions in a way that lowered rates, but broadened the base. And so I agree with Bob.

And so you had that ratio. And you had agreement. The president in some sense changed the terms of the discussion, and the discussions fell apart. This 4-1, this is — in a sense, the spending cuts here, a lot of it relies on war spending that everyone understood would never be spent. And so the ratio supposedly is 1-1, but as people look at the ratio of spending to revenue, it’s not nearly even 1-1.

GWEN IFILL: The president said if he can’t get what he calls this balance, he is going to veto anything that comes to his desk.

Now, he said also in the same talk that Speaker Boehner was guilty of a “my way or the highway” approach. Isn’t a veto threat also my way or the highway?

ROBERT GREENSTEIN: No.

GWEN IFILL: Why not?

ROBERT GREENSTEIN: Because what the president is basically saying is, I will put my sacred cows on the table — $250 billion in Medicare cuts, including some changes in deductibles and co-pays and Medigap coverage, is indeed a sacred cow. And it’s about as much as we know how to do now in Medicare without causing big problems.

The health reform act will enable us to learn more in the future and take further steps in the future. He is saying, I will put my sacred cows on the table, but you have to put yours as well. I will hit — in terms of some of these changes in Medicare and other programs, I will affect ordinary Americans who don’t have big budgets. But in order to do that, we have to have some balance. Big corporations, the people at the top of the income scale have to contribute something, too.

And Speaker Boehner is saying, no revenue whatsoever, period. That’s my way or the highway. That’s not what Obama is saying.

GWEN IFILL: Phil Swagel, did you hear that kind of conciliatory language coming from the president today?

PHILLIP SWAGEL: You know, I did a week ago. A week ago, I thought there was a lot of common ground. Today, it seems like a different tone, a different message.

Look, I give the president some credit. He finally in some sense put on the table what he really wants, his vision. And they called it a vision. And I do think it’s a vision. And there will be a contrast about the size of government and the size of taxes and what kind of society we want.

GWEN IFILL: Is the challenge — as we have this debate about taxes and about spending cuts and deficit reduction, is the challenge that we’re facing now more about politics or about policy?

ROBERT GREENSTEIN: Well, it’s both. I mean, in part, I think some Republican leaders don’t want the president to accomplish anything before the election.

But, fundamentally, it’s about policy and it’s about ideology. It’s also about campaign contributions and all of that stuff. You will see unfortunately some members of both parties resist the president’s proposals to do things like reduce some of the giveaways to big drug companies in the 2003 drug bill that cost taxpayers over $100 billion over 10 years or to rein in some of the excessive farm subsidies to agricultural corporations.

Those are on the spending side. People like Martin Feldstein, who was President Reagan’s chief economist, have said that some of the most wasteful and unproductive spending anywhere in the budget is actually in the tax code.

And those are a number of things that Obama is talking about. I would also note that when you do the math and you include, as one should, the spending cuts that were just enacted last month in all of the non-entitlement programs, when you take the numbers, you remove the war spending — I agree with Phil there — and you use the same budget baseline, the same measuring rod that both Simpson and Gang of Six did, you will actually find the Obama package is more than $2 in spending cuts for every dollar in revenue.

GWEN IFILL: Does your math equal that? And do you think this is about politics fundamentally or about policy?

PHILLIP SWAGEL: Yes, I think we — Bob and I need to open up a spreadsheet after the show and do the math.

There’s going to be a mix of politics and policy. And, you know, for me, it’s fine actually for the president to put out his vision and give a kind of angry speech. That’s fine. Everyone should just understand last week was policy. This week is politics. And, hopefully, those two can merge. And both sides have to say, you know, we’re going to move from where we are, just saying no.

But, in some sense, the president is playing the same game he’s decrying, which is — that’s politics.

GWEN IFILL: Phil Swagel of University of Maryland and American Enterprise Institute, Bob Greenstein of Center on Budget and Policy Priorities, thank you both very much.

ROBERT GREENSTEIN: Thank you.