Obama Embraces Debt-Cutting Commission Ideas, Shuns Ryan’s Medicare Plan

President Barack Obama embraced proposals by leaders of his debt-cutting commission while shunning Republicans’ plan to privatize Medicare and opening a debate over a tax overhaul and spending reductions.

The deficit-reduction proposal Obama presented yesterday is similar to the mix of spending cuts and tax increases offered last year by the chairmen of his bipartisan fiscal commission. It contrasts with a Republican plan, announced earlier this month by House Budget Committee Chairman Paul Ryan, that would cut $6 trillion from programs including Medicaid, Medicare, food stamps and education while reducing top income-tax rates.

The president’s 2012 budget proposal in February didn’t endorse the Dec. 1 proposal by the debt-panel chairmen, former Wyoming Senator Alan Simpson, a Republican, and Erskine Bowles, a former chief of staff for President Bill Clinton.

While Obama’s speech lacked details for overhauling entitlement programs, it may boost negotiations on how to cut the nation’s long-term debt, said Jason Peuquet, a policy analyst for the Committee for a Responsible Federal Budget, a Washington-based bipartisan group that examines fiscal issues.

“This is a huge step forward,” Peuquet said.

Stan Collender, managing director of Qorvis Communications and a former congressional budget aide, called Obama’s proposal “a political game-changer.”

Obama’s plan aims to reduce the deficit by $4 trillion over 12 years, while his debt-panel leaders would cut $3.8 trillion in nine years. Ryan’s budget would cut $6.2 trillion over the next decade, though it wouldn’t balance the budget until 2040 because of offsetting tax cuts.

‘Poisoning Wells’

House Republicans were instantly critical of Obama’s plan. Majority Leader Eric Cantor of Virginia said Obama’s only concrete proposal was raising taxes. Ryan, of Wisconsin, said that he was “very disappointed” in the president’s proposal and that “rather than building bridges, he’s poisoning wells.”

Obama’s fiscal commission provided a detailed plan for shoring up Social Security, including reducing future benefits and raising the retirement age, something neither the president nor Ryan broached.

The president said yesterday that both parties should work together to strengthen the program without “slashing” benefits for future generations. “It can be done,” Obama said.

“All we got is what he won’t do, not what he wants to do,” Ryan told reporters after Obama’s speech. Earlier in the day, he said in an interview that “Social Security is the one area I think that has the best chance of working with them on.”

Yesterday, three Senate Republicans introduced a bill to gradually raise the Social Security retirement age to 70 in 2032 and peg future benefits to income levels. The three are Lindsey Graham of South Carolina and two freshmen elected with Tea Party support, Mike Lee of Utah and Rand Paul of Kentucky.

Tax Overhaul

The proposals by the president and Ryan may open a debate over a tax overhaul that would lower rates while reducing or ending many credits and deductions.

Obama provided no specifics on taxes beyond rescinding cuts for the wealthiest Americans first enacted under President George W. Bush. The debt-panel leaders also would let those tax cuts expire for people earning more than $250,000. Ryan proposes reducing the top income-tax rates for individual and corporate taxes from 35 percent to 25 percent.

Ryan’s focus on privatizing Medicare and shrinking Medicaid by converting it to a block-grant program controlled by the states has sparked a backlash from Democrats, who say he is trying to balance the budget on the backs of the elderly and the poor.

Private Insurers

Ryan would slow Medicare spending by $40 billion over a decade and turn the program over to private insurers, starting with people turning 65 in 2022, by providing them with subsidies to buy private coverage.

Obama said yesterday that Ryan’s plan “ends Medicare as we know it” and would result in 50 million Americans losing health insurance.

The president proposed limiting the growth of Medicare per- capita spending to 0.5 percent of the gross domestic product and strengthening a board, created by the health-care law, that is intended to recommend Medicare spending cuts.

The debt commission proposal would limit the growth in overall health-care spending to 1 percent of GDP. It identified specific areas to help achieve its goal, including Medicare cost-sharing and restrictions on some Medigap supplemental insurance coverage.

Republicans are attacking Obama for failing to achieve the same budget savings that his commission’s leaders proposed for the next 10 years.

‘Doesn’t Even Come Close’

“It doesn’t even come close to meeting the benchmarks set by House Republicans,” said Representative Scott Garrett of New Jersey, vice chairman of Ryan’s Budget Committee.

Obama’s call for $400 billion in defense cuts by 2023 is smaller than the commission’s proposal, which recommended cutting about twice that much from defense as part of an overall $1.7 trillion in discretionary savings. Ryan’s plan offers a $78 billion defense reduction.

David Walker, a former U.S. comptroller general, said the differences between Obama’s and Ryan’s plans make it “unrealistic to strike a grand bargain by the end of June,” when Congress must vote to increase the nation’s $14 trillion debt ceiling.

Still, he said the two sides may be able to agree on a Social Security overhaul, the outlines of a 2012 budget and a so-called automatic “trigger” mechanism to control spending similar to what Obama proposed.

The president’s plan would require an across-the-board spending reduction and higher taxes if the nation’s debt-to- gross domestic product hasn’t stabilized by 2014. Walker said this form of enforcement mechanism could be enacted along with a vote on the debt ceiling.

To contact the reporters on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net; Brian Faler in Washington at bfaler@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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