POLITICS

Obama Debt Speech: Tax Increases, Medicare Changes Included In President's Plan

04/13/2011 01:54 pm ET | Updated Jun 13, 2011

WASHINGTON -- In an effort to recast the debate over the nation’s fiscal future, President Barack Obama announced on Wednesday a plan to reduce the deficit by $4 trillion over 12 years. The plan was put together largely from the outline produced by his own deficit commission co-chairs.

The proposal, which comes as House Republicans get set to vote on a budget of their own and a bipartisan group of six Senators chart their own deficit-reduction framework, includes a mixture of tax hikes, drastic spending cuts, reductions in the Pentagon’s budget and smaller entitlement reforms. It would seek to achieve a final balance of three dollars in spending reductions for every dollar generated in additional tax revenue.

"Now that our economic recovery is gaining strength, Democrats and Republicans must come together and restore the fiscal responsibility that served us so well in the 1990s," the president said in a speech at George Washington University. "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. And we have to do it in a way that protects the recovery, and protects the investments we need to grow, create jobs and win the future."

In a nod to the likelihood that a compromise won’t be reached, President Obama also included a “debt fail-safe” trigger, mandating that Congress pass across-the-board spending reductions if the nation’s debt is not on a declining path as a share of the economy by the second half of the decade.

“The exact design of that we would have to work out, obviously,” said a senior administration official, previewing the President’s speech. “I think what is important is the idea. [...] The goal of a fail-safe is actually to give confidence that no matter what happens, a degree of deficit reduction will be met,” the official said.

White House advisers projected the president’s fiscal framework would reduce deficits as a share of the economy to about 2.5 percent of GDP by 2015.

The politics surrounding the proposal appeared almost immediately complicated. Even before the President announced his plan, Congressional Republican leadership, fresh off a White House meeting of their own, hosted a press conference in which they announced a tax hike to be a non-starter in negotiations and re-affirmed their commitment to the budget proposal introduced by House Budget Committee Chairman Paul Ryan (R-Wisc.).

In his Wednesday speech, Obama took on the Ryan approach in harsh terms, calling it a vision that would see "roads crumble and bridges collapse," young Americans unable to go to college, seniors left uncared for, Medicare ended, and 50 million Americans left without health insurance.

"The fact is," said Obama, "this vision is less about reducing the deficit than it is about changing the basic social compact in America."

And yet, the president also acknowledged in his speech that not all Democrats are enamored with his approach. Indeed, officials both on and off the Hill, expressed skittishness with many aspects of the administrations plan, chief among them the $1-to-$3 revenue-to-spending cut ratio.

“The three-to-one ratio is the big issue,” said one high-ranking Democratic congressional aide. “It’s to the right of many [Democrats].”

Even members of the President’s own deficit commission were worried that the new blue-print, while demonstrating admirable leadership from the administration, came up a touch short in terms of shared sacrifice. Former SEIU president Andy Stern wrote in an email to The Huffington Post that the plan failed to promote “responsibility for our country's largest corporations to pay their fair share and contribute to deficit reduction.” It also, Stern warned, did not set aside “obvious capital for investment to Win the Future” -- a reference to the presidential motto for job-creation.

The disagreement and debate seemed at odds with the president's actual plan, which stayed closer to broad themes than policy specifics.

According to a fact sheet sent out by the White House, the President would set “a goal” of holding the growth in base of security spending below inflation, which would save $400 billion by 2023. This would be “in addition to the savings generated from ramping-down overseas contingency operations” -- in other words: ending the wars in Afghanistan and Iraq would only help reduce the deficit. But if the fail-safe trigger were to come into play, the administration said that national security spending would not be subjected to the mandatory cuts. The total savings, Stern notes, fall short of those proposed by Rep. Barney Frank’s (D-Mass.) Sustainable Defense Task Force report on Pentagon spending.

Under the Obama proposal, non-security discretionary spending would be cut to levels that would save $770 billion by 2023. In addition, there would be cuts to mandatory spending with the goal of achieving $360 billion in savings in that same time frame. The tax system would be simplified and the savings would be used to pay for lower corporate rates. In addition, the income tax rates on the highest earners (families making over $250,000 a year) would revert to pre-George W. Bush rates.

On Social Security, the Obama proposal is most vague, expressing that the retirement program is neither in crisis nor a contributor to the nation’s “near-term deficit problems.” But the president said Social Security should be reformed for long-term results. How it would be changed, the fact sheet doesn’t say, except to note that Obama “supports bipartisan efforts to strengthen Social Security for the long haul.”

On Medicare, the president’s vision is similarly broad. Obama rules out a voucher system as envisioned by Rep. Ryan. The senior administration official who previewed the speech said the president “does not support raising the Medicare retirement age.”

"I will preserve these health care programs as a promise we make to each other in this society," Obama said in his speech. "I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs."

Instead, the administration is choosing to build off the legislation passed during Obama's second year in office. His proposal calls for setting “a more ambitious target” to hold down Medicare cost growth and reducing excessive spending on prescription drugs -- one of the few specifics that got cheers from progressive advocates briefed on the plan. In order to get there, the president proposes strengthening the Independent Payment Advisory Board, which is tasked with finding excessive and unnecessary spending within the system.

This story has been updated to include elements of President Obama's speech. Follow further updates on the live blog below.

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