Obama Set to Unveil Big Tax Hike


obama2President 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.”

{MoneyNews.com/Matzav.com Newscenter}


  1. I am extremly conservitive but I will agree with Obama if he will make this move.Given the state of the deficit what alternitive is there to cutting entitlement programs and raisng taxes?

  2. Raise taxes on the rich? How many frum people fall into the category of “rich?” Not that many. The rest of us won’t get our taxes raised, so why should we complain? If Mr. Bloomberg has to pay a feww $ extra, so what? The rich can afford it – let them buy a Lexus instead of a BMW. I’d rather have highways that are safe to drive on, bridges that don’t fall down, and enough books for schoolkids.

    Come to think of it, even if a frummie starts out with a “rich” salary, after deductions for tuition, etc., they’re going right back down into a normal tax bracket, and if they’re still feeling pain, let them give a little more tzedakah – that’s tax exempt too.

  3. I knew when i started reading an editorial from the WSJ writers…stuck in 1928 thinking that markets regulate themselves…and that capitalism works without government involvement to insure that business gets its away i nthe country and around the world….so i imagined what it would say and i was correct.

    The editors of the WSJ don’t let us down. The article includes no critique of Obamas plan as to whether it would lower the deficit and/or if it would preserve the programs designed ot help people from dying in the streets or living on the street with chronic untreated illnesses, or poor food and nutrition, and all the other things like education that keeps the country able to be economically viable especially now, due to what the democrats put into the structure of the government over the past 100 years.

    So for instance the pundit writer of the WSJ critiqued the lack of nobility in Obama’s presumed psychological state regarding the bugdet, he critiqued obama’s mental motivations, he listed irrelevancies to the topic of the obama proposal ( i.e. like the fact that Obama didnt accept the commission’s findings ( the commission Obama set up )
    He set up to investigate debt reduction.

    The 4th to last paragraph in the article is incoherent.
    the 3rd to last paragraph contains a lie
    the last paragraph criticizes obama for criticizing Ryan.
    the WSJ pundit continues that obama is somehow a dirty politician by Obama’s criticizing Ryans plan which crushes the majority of citizens in the country, who are also the neediest.
    Then in the last sentence he tells the reader that “Mr. Obama ludicrously claimed that Mr. Ryan favors “a fundamentally different America than the one we’ve known throughout most of our history.” Nothing is likelier to bring that future about than the President’s political indifference in the midst of a fiscal crisis.
    So the idea that Obama has been indifferent is a lie- how does the writer know that obama hasnt been waiting for the republicans house to offer theirs first ,before offering his own that borrows some stuff from the commission obama set up.? it isnt even a questiuon that it is what he did when Ryans proposal was so pathetic.
    Next posting of mine will be the outline of Obama’s proposal if matzav print it

  4. Since the Obama Budget Outline wasn’t presented here I will post the one from the Washington Post

    Summary of the proposal
    Washington Post Article outlines the White House’s Long-Term Budget Proposal:

    # Top line: $4 trillion in deficit reduction over 12 years, backed by a “trigger” that begins making across-the-board cuts in discretionary spending and tax expenditures if debt if we’re not on track by 2014. That’s achieved through:

    + Discretionary spending cuts: Increases the non-security spending freeze to the freeze-plus-cuts proposal favored by the deficit commission. That nets roughly $800 billion. Lops a further $400 billion off of the security-related discretionary spending.
    Health care: Directs the Independent Payment Advisory Board to hold cost growth in Medicare to GDP plus 0.5 percent rather than GDP plus 1 percent. To make that achievable, IPAB gets new powers, including the ability to restructure Medicare’s insurance so it pays differently for treatments of different value.
    Also shortens the patent on biologic drugs from 12 years to seven years, implements the recommendations from the National Governors Association working group on Medicaid, and does a few more things. Total savings: $480 billion.

    + Non-Medicare, Medicaid or Social Security mandatory spending: Makes $360 billion in cuts.
    Tax reform: Raises $1 trillion by clearing certain expenditures from the tax code. Also assumes the expiration of the Bush tax cuts for income over $250,000. The breakdown of spending cuts to tax increases in the proposal is 3:1.

    + Social Security: Supports negotiations to close the Social Security shortfall consistent with the principles laid out in the budget.
    Initial impression is that this looks a lot like the Simpson-Bowles report, but in a good way. It doesn’t go quite as far on defense cuts, but it also doesn’t implement a cap on tax or spending. It goes a lot further than Ryan’s budget does in terms of actually figuring out ways to save money rather than just using caps to shift costs onto states/beneficiaries.

    President Obama says his plan cuts $4 trillion over 12 years. Rep. Paul Ryan says his plan cuts $4 trillion over 10 years. If you look at the numbers, the two plans appear quite similar. But if you look at how they’d get to the number, they couldn’t be more different. And it’s how you get to the number that matters, because that’s what decides whether you’ll get to the number. It’s also, incidentally, what decides the shape of our government going forward.
    Ryan’s number is the product of holding the growth of Medicare and Medicaid to the rate of inflation, which is far lower than has ever been shown to be possible. How he gets there is, on Medicaid, he tells the states to figure it out, and on Medicare, he tells seniors to figure it out. Both strategies have been tried: Various states have gotten waivers to radically remake their Medicaid program, and the consumer-driven model that Ryan is proposing for Medicare has been attempted in the Federal Employee Health Benefits Program and Medicare Advantage. None of these programs have worked, which is why we’re in our current predicament.
    Obama’s number is the product of holding Medicare growth to GDP+0.5 percent — which is, in practice, a few percentage points beyond inflation, and a few percentage points behind the health-care system’s normal rate of growth. He mostly gets there through the cost controls passed as part of the Affordable Care Act, which hope to hold Medicare to GDP+1 percent. He then proposes to shave a further half-percentage point off the growth rate by introducing value-based insurance — where we pay more for treatments that are proven to work than for treatments that are not proven to work — into Medicare and giving generic drugs quicker entry into the marketplace. These programs have worked at smaller scales and in more limited pilots. We don’t know if they’ll work across the entire Medicare system, but we have reason to think they will.
    Then there are taxes. Ryan’s plan pledges to make the Bush tax cuts permanent, at a cost of at least $4 trillion over 10 years, and more after that. He’d then clean out the tax code, but he’d pump the money he made from closing expenditures back into tax cuts. Obama proposes to return to the Clinton-era tax rates on income over $250,000 and then raise a further trillion through closing tax expenditures. Altogether, that’s about $2 trillion less than letting all the Bush tax cuts expire, but at least $2 trillion more than Ryan’s plan. Notably, Obama hasn’t said which expenditures he’d close to get to $1 trillion. The difference between the two tax plans — particularly when added to Obama’s decision to cut $400 billion from security-related spending, while Ryan largely exempts that category — explains why Obama doesn’t have to make such deep cuts in programs for seniors and low-income Americans.
    So are we finally getting the grand philosophical debate we wanted? Not quite. Obama spoke extensively of vision — the GOP’s, which “claims to reduce the deficit by spending a trillion dollars on tax cuts for millionaires and billionaires … {while} asking for sacrifice from those who can least afford it and don’t have any clout on Capitol Hill,” and his, “where we live within our means while still investing in our future; where everyone makes sacrifices but no one bears all the burden; where we provide a basic measure of security for our citizens and rising opportunity for our children,” but he’s overselling it.
    Obama’s budget is not philosophy. It is very similar to the Simpson-Bowles report, which attracted the votes of Republicans as far to the right as Tom Coburn. Few Democrats would say their vision of balancing the budget is one in which there was only one dollar of new taxes for every three dollars of spending cuts, but that’s what Obama’s proposal envisions. Obama’s budget, somewhat curiously, is what you’d expect at the end of a negotiation process, not the beginning. In fact, as it’s modeled off of Simpson-Bowles, it is the product of a negotiation process, as opposed to an opening bid. It is, in other words, policy. You could argue that this is a philosophy, and that philosophy is pragmatism, but I think that’s getting too cute. This is the sort of policy that night pass and might work.
    Ryan’s budget is purer, but it is also more fantastical. It posits the government it wishes were possible, and the policies it wishes would work. It is an opening bid so ideological that it leaves little room for a process of negotiation. Every dollar it purports to raise comes from cutting spending. Not one comes from taxes. It privatizes Medicare and unwinds the federal government’s role in Medicaid. For all the philosophy in his budget — and his budget does have a very different philosophy about the proper role of government than we see in federal pllicy today — there’s neither policy that could pass nor policy that could work. And, curiously for a conservative who distrusts both government and congress, it has no answer to the question of “what if this fails?”
    The policy that clarifies this difference is the “trigger.” Obama’s budget, aware that it might not pass and, if it does pass, it might not work, proposes to make automatic cuts to discretionary spending and tax expenditures if the promised savings don’t materialize. If Ryan’s budget falls shorts, there’s no comparable failsafe. That is to say, Obama’s budget has two plausible ways to get to its number, while Ryan’s budget has none. You don’t need a PhD in philosophy to understand why that’s a problem.