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Obama’s $1.5 Trillion Tax Program Exchanges Conciliation for Confrontation

President Barack Obama set aside his stance as compromiser-in-chief to champion the populist cause of “fairness” for the middle class in the struggle over how to bring down the nation’s budget deficit.

Obama yesterday targeted the rich for $1.5 trillion in tax increases over the next decade and threatened to veto any cut to benefits under the Medicare health-insurance plan for the elderly unless wealthy Americans pay higher taxes.

“This is a more confrontational approach than Obama has taken for quite a while,” said Dan Schnur, a campaign adviser to Republican presidential candidate John McCain in 2000. “He’s spent a lot of time trying to be a conciliator. No more. As of today, he’s decided to pick a fight with Republicans.”

Obama’s deficit-reduction package is a rebuff to House Speaker John Boehner, who last week declared tax increases “off the table” and urged a 12-member congressional supercommittee charged with reducing the deficit to focus on scaling back entitlement programs such as Medicare.

Both sides have pulled back from compromise offers Obama and Boehner made during unsuccessful negotiations in July seeking a broad deficit-reduction agreement. In announcing his proposal, Obama stressed the benefit cuts the middle class would sustain unless Republicans permit tax increases on the wealthy, saying he wouldn’t allow “any plan that puts all the burden for closing our deficit on ordinary Americans.”

“This is not class warfare; it’s math,” Obama said at the White House yesterday. “The money’s going to have to come from someplace.”

Long-Term Deficits

Obama coupled the call for tax increases with spending cuts that he said would reduce long-term deficits by $3 trillion beyond the $1 trillion that was agreed to as part of a deal to raise the U.S. debt ceiling.

The deficit plan would reduce federal employee benefits for civilian and military personnel, cut farm subsidies, impose a $100-per flight fee on corporate jets and could end Saturday mail delivery.

Obama seeks $248 billion in Medicare cuts, including reductions in payments to health-care providers, and $72 billion in savings from the Medicaid state-federal health program for the poor. Another $1.1 trillion would come in savings from winding down the wars in Afghanistan and Iraq, officials said.

The Buffett Rule

Obama included a proposal to overhaul the tax code based on what he called “the Buffett rule” after Warren Buffett, the 81-year-old chairman and chief executive officer of Berkshire Hathaway Inc. The rule would eliminate “special lower rates for the wealthy” and require people with incomes of $1 million or more to pay at least the same percentage in taxes as middle- income Americans, he said.

Treasury Secretary Timothy F. Geithner said in a Bloomberg Television interview that there are multiple approaches to enacting the Buffett rule, which he called “a simple, basic principle” that should guide efforts to rewrite the tax code.

Republicans condemned the president’s plan.

“Veto threats, a massive tax hike, phantom savings and punting on entitlement reform is not a recipe for economic or job growth -- or even meaningful deficit reduction,” Senate Minority Leader Mitch McConnell of Kentucky said in a statement.

“Pitting one group of Americans against another is not leadership,” Boehner of Ohio said in a statement. The president “has not made a serious contribution” to the deliberations of the supercommittee, he said.

Romney Criticism

Former Massachusetts Governor Mitt Romney, a contender for the Republican Party nomination to face Obama next year, criticized the president’s plan as a threat to job creation.

“President Obama’s plan to raise taxes will have a crushing impact on economic growth,” Romney said in a statement. “This is yet another indication that President Obama has no clue how to bring our economy back.”

The administration and congressional Republicans are at odds over how to re-ignite the economy, drive down unemployment and grapple with the nation’s long-term deficit. Administration forecasters project the economy will grow a sluggish 1.7 percent this year and the jobless rate will average 9.1 percent in 2011 and show little change in 2012, when the presidential election takes place.

To deal with the deficit, Obama won’t support any increase in the eligibility age for Medicare, as he did while trying to negotiate a broad deficit-reduction package with Boehner in July, said administration officials who briefed reporters on condition of anonymity before the president spoke.

Benefits Firewall

Obama’s combative tone aside, some budget analysts said they saw elements of the package that could be starting points for a negotiated agreement. It includes calls for Medicare and Medicaid cuts that breach the firewall Democrats have long maintained around federal entitlement benefits. Those benefit cuts would be contingent on a tax increase for the wealthy.

That’s a first for the president in formally proposing benefit cuts and is intended to put the onus on Republican leaders and the six party members of the supercommittee to respond with a compromise on tax increases, said Bob Bixby, president of the nonpartisan Concord Coalition in Arlington, Virginia.

“The political significance outweighs the dollar figures,” Bixby said. “It’s an important breakthrough.”

Under Obama’s proposal, seniors new to the Medicare program would pay $25 more for physician insurance, starting in 2017. Another proposal would limit insurance plans that eliminate or reduce co-payments and deductibles, by adding a premium of about 15 percent to Medicare coverage for people who buy such plans.

The Medicare changes would save the government about $3.9 billion from 2017 to 2021. An additional proposal would have high-income people in the program pay more in premiums, a $20 billion savings, according to the White House summary.

Schnur, now director of the Unruh Institute of Politics at the University of Southern California, said Obama may be “keeping his options open” on a deal.

“His first choice is almost certainly to get an agreement, but being able to blame Republicans if there wasn’t isn’t a bad second option,” Schnur said.

To contact the reporter on this story: Mike Dorning in Washington at mdorning@bloomberg.net

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

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