Obama Said to Call for Curbing Entitlements, Raising Taxes

Obama Girds for Struggle with Republicans Over Debt Limit
President Barack Obama in the Blue Room of the White House in Washington, DC, April 7, 2011, after Congress reached an agreement to pass a budget. Photographer: Saul Loeb/AFP/Getty Images

President Barack Obama today will outline a path to cutting the nation’s long-term debt through reductions in entitlement spending and increased taxes on the wealthy while seeking to draw a sharp contrast with Republican proposals, according to a person familiar with the plan.

Obama’s approach will draw on the findings of the Simpson-Bowles debt commission chairmen, including overhauling the tax code to bring in more revenue, and proposals he has already set out in his 2012 budget. The president also will try to align his approach with the so-called Gang of Six, a group of three Republican and three Democratic senators working on their own fiscal recommendations, the person said.

The approach Obama is taking has four components, according to a White House statement: holding down domestic spending, trimming the defense budget, curbing health-care costs and closing tax loopholes.

“The president will make clear that while we all share the goal of reducing our deficit and putting our nation back on a fiscally responsible path, his vision is one where we can live within our means without putting burdens on the middle class and seniors or impeding our ability to invest in our future,” the statement said.


The administration is aiming to provide a counterpoint to the budget plan released last week by Representative Paul Ryan, which relies on deep cuts in federal spending to trim the deficit. Obama will specifically reject the Wisconsin Republican’s idea of a voucher-like system for future Medicare recipients, the person said.

Obama’s address, scheduled for this afternoon at George Washington University in the capital, is being delivered as the administration is preparing for a fight with congressional Republicans over raising the government’s debt limit and as the president is trying to frame the debate for his 2012 re-election campaign.

As he did with his proposal to overhaul the health-care system, Obama likely will offer a broad overview of what he says is needed to cut the deficit, leaving the details to be hashed out in Congress.

Working With Congress

“He will provide the American people his vision for long-term deficit reduction and dealing with our long-term debt,” White House press secretary Jay Carney said yesterday. Obama “looks forward to working with leaders of Congress going forward from there,” he said.

Many of Obama’s themes will reflect his Feb. 14 budget proposal, including letting income tax rates for married couples making more than $250,000 or for individuals earning above $200,000 rise to 39.6 percent from 35 percent when the current rates expire and eliminating some deductions and breaks.

Signaling the political challenge, House Speaker John Boehner, an Ohio Republican, said in anticipation of Obama’s speech that “tax increases are unacceptable and are a non-starter.”

Boehner is among the Democratic and Republican leaders that Obama has invited to the White House for a preview of the speech this morning. Also invited are House Majority Leader Eric Cantor, a Virginia Republican, and House Minority Leader Nancy Pelosi, a California Democrat; House Minority Whip Steny Hoyer, a Maryland Democrat; Senate Democratic leader Harry Reid of Nevada, Senate Republican leader Mitch McConnell of Kentucky and Senators Dick Durbin, Democrat of Illinois, and Senator Jon Kyl, Republican of Arizona.


Over the next five years, the government is forecast by the administration to pile up a cumulative deficit of $3.8 trillion; over the decade, the cumulative deficits would rise to $7.2 trillion.

While Obama’s budget forecast cutting the deficit by $1.1 trillion over a decade, the recommendations from the debt commission’s co-chairmen, former Senator Alan Simpson, a Republican from Wyoming, and former Clinton administration official Erskine Bowles, a Democrat, 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 proposes to reduce top income and corporate tax rates from 35 percent to 25 percent.


Both sides are girding for a fight on entitlements. Ryan would phase out the traditional Medicare program for the elderly and replace it with subsidies to buy private insurance. It also would cap spending on Medicaid, the health-care plan for the poor.

Obama will address some specific changes to Medicare, 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 Department of Health and Human Services expand accountable care organizations that reward doctors based on performance as quickly as possible and use a new payment formula for physicians.

Carney called Ryan’s plan “imbalanced” because it relies heavily on deep cuts in Medicare and Medicaid that would place “all of the burden” on middle-income Americans, the elderly and the disabled.

Different Approach

“That’s not the approach the president believes is the right way to go,” Carney said.

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 3.49 percent yesterday, 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.

Obama is seeking to regain momentum on the deficit issue following the release of Ryan’s plan and an agreement with congressional Republicans on cuts for the current fiscal year.

Honeywell International Inc. Chief Executive Officer David Cote, a member of the president’s debt commission, said he would like to see the administration embrace the goal of cutting at least $4 trillion from the deficit over 10 years.

Praise for Ryan

Cote, who declined to say whether he has consulted with the White House on Obama’s speech, commended Ryan for focusing attention on the long-term deficit.

“He is the one guy who has really demonstrated guts here in getting out there and being willing to be a lightning rod and attract complaints,” Cote said.

“The president really stood up in establishing the fiscal commission,” Cote said. “But I have to say, when it comes to somebody putting forward a plan, Paul Ryan did that first.”

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