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Obama sees taxing rich to cut deficit $3 trillion

Drawing clear battle lines for next year's elections, a combative President Obama on Monday demanded that the richest Americans pay higher taxes to help cut soaring U.S. deficits by more than $3 trillion. He promised to veto any effort by congressional Republicans to cut Medicare benefits for the elderly without raising taxes as well.

"This is not class warfare. It's math," Obama declared, anticipating Republican criticism, which was quick in coming.

"Class warfare isn't leadership," House Speaker John A. Boehner, R-Ohio, said, in Cincinnati.

Obama's speech marked a new, confrontational stance toward Republicans after months of cooperation that many Democrats complained produced too many concessions. While the plan stands little chance of passing Congress, its populist pitch is one the White House believes the public can back.

The president's proposal, which he challenged Congress to approve, would predominantly hit upper-income taxpayers and would also target tax loopholes and subsidies used by many larger firms. It would spare retirees from any changes in Social Security and would direct most of the Medicare spending cuts to health care providers, not beneficiaries.

Benefit programs wouldn't go unscathed. Obama's plan would reduce spending for Medicare, Medicaid and other such programs by $580 billion. But with Republicans calling for massive cuts in entitlement programs, Obama said he would veto any legislation that cut Medicare benefits without raising new revenue.

His plan also would count savings of $1 trillion over 10 years from the withdrawal of U.S. troops from Iraq and Afghanistan.

The deficit-reduction plan represents Obama's longer-term follow-up to the $447 billion in tax cuts and new public works spending that he has proposed as a short-term measure to stimulate the economy. The new proposal also inserts his voice into the discussions of a joint congressional "supercommittee" charged with recommending deficit reductions of up to $1.5 trillion.

"We can't just cut our way out of this hole," he said.

The Republican reaction was swift and dismissive. "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," said Senate Minority Leader Mitch McConnell, R-Ky. "The good news is that the Joint Committee is taking this issue far more seriously than the White House."

The president announced his deficit reduction plan in a 20-minute speech from the Rose Garden at the White House.

Key features of Obama's plan:

*$1.5 trillion in new revenue, which would include about $800 billion over 10 years from repealing the Bush-era tax cuts for couples making more than $250,000. It also would place limits on deductions for wealthy filers and end certain corporate loopholes and subsidies for oil and gas companies.

*$580 billion in cuts in mandatory benefit programs, including $248 billion in Medicare and $72 billion in Medicaid and other health programs. Other mandatory benefit programs include farm subsidies and federal employee retirement benefits. The plan would reduce federal workers' paychecks by 1.2 percent over three years, saving the government about $21 billion over 10 years.

Illustrating Obama's populist pitch on taxes, he also suggested that Congress establish a minimum tax on taxpayers making $1 million or more in income. The measure -- the White House calls it the "Buffett Rule" for billionaire investor Warren E. Buffett -- is designed to prevent millionaires from taking advantage of lower tax rates on investment earnings than what middle-income taxpayers pay on their wages. Buffett, chairman of The Buffalo News, has said the wealthy should pay more taxes.

On average, however, the wealthiest people in America pay a lot more in taxes than the middle class or the poor, according to the nonpartisan Tax Policy Center. This year, households making more than $1 million will pay, on average, 29.1 percent of their income in federal taxes. A household making between $50,000 and $75,000 will pay 15 percent of its income in federal taxes, which include income taxes and Social Security payroll taxes.

In calling for sizable tax revenue, Obama gave the Joint Committee a choice: It could generate $1.5 trillion in new revenues through an overhaul of the tax code, or it could adopt his recommendations, most of them ideas recycled from his previous budget proposals, which were largely ignored by Congress. They include tax increases on high-income families, oil and gas companies and U.S.-based corporations that earn profits overseas.

Either way, Obama is unlikely to get his way. The committee would be hard pressed to undertake a wholesale restructuring of the tax code by its Thanksgiving deadline. And the president's own proposals have little chance of making their way out of Congress intact.

But with Bush-era tax cuts set to expire at the end of 2012 and with deep defense cuts scheduled to take effect in 2013 if the Joint Committee fails to act, Obama set down clear lines for next year's elections. And by threatening to veto Medicare benefit cuts that aren't paired with tax increases, he raised the pressure on the committee to include revenues in its plan.

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