President Obama will present a deficit reduction plan tomorrow as the federal government continues to battle over the budget. The agreement reached last week prevented a government shutdown. A dollar amount for deficit reduction goals is expected. Read more about this in the full article from Money Morning.
Washington’s heated budget battle will continue this week when U.S. President Barack Obama presents a deficit reduction plan on Wednesday.
The latest federal budget proposal will come less than a week after President Obama and Congress reached an eleventh-hour agreement for the 2011 budget to prevent a government shutdown. They reached the deal shortly before midnight Friday, when the shutdown would have gone into effect.
Lawmakers agreed to slash around $38.5 billion in spending from this fiscal year’s budget. Republicans were able to push for more cuts; Democrats won a fight to keep funding for Planned Parenthood.
Many analysts say the 2011 budget battle was just a warm-up for Washington’s upcoming funding issues: the 2012 budget and the debt ceiling.
While details of Obama’s plan are still vague, David Plouffe, a senior White House advisor, said Sunday on Fox News that the president will name a dollar amount for deficit reduction goals. Obama is expected to present a 2012 plan that includes cuts to entitlement programs Medicare and Medicaid, changes to Social Security, reduced military spending and support for tax increases for America’s richest taxpayers.
"Every corner of the federal government has to be looked at here," said Plouffe. "We’re going to have a big debate."
President Obama’s proposed Medicare changes are expected to sharply differ from the ones released last week by Rep. Paul D. Ryan, R-WI, in the GOP budget outline. Plouffe said the White House only supports Ryan’s Medicare plans that are already in the healthcare law.
Raising taxes will be a hard sell to Republicans, who have tried to push the president to focus more on spending cuts. They were disappointed with President Obama’s earlier 2012 budget proposal released in February. The president proposed a five-year domestic spending freeze, but also allocated increases in education, research, infrastructure and clean energy programs.
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"I sit here and I listen to David Plouffe talk about, you know, their commitment to cut spending and knowing full well that for the last two months we’ve had to bring this president kicking and screaming to the table to cut spending," U.S. Rep. Eric Cantor, R-VA, told Fox News. "Instead of returning back to the age-old playbook of raising taxes so that spending can continue, I think maybe the White House ought to take a look at what we’re talking about…which is to cut spending as well as to reform these entitlement programs."
Cantor said the subject of taxes was "settled" last year when the Bush tax cuts were extended.
"It was then that we all agreed it wouldn’t be a good thing if we want to see job creation for taxes to go up," Cantor said.
Rep. Ryan told NBC’s "Meet the Press" Sunday that "if you go down the tax increase path, you’re sacrificing the economy."
But Democrats want to present support for the middle class and disagree with Ryan’s proposed $1 trillion tax break for Americans earning over $250,000 a year. President Obama is expected to use himself as an example to make a case for tax hikes.
"People like him, as he’ll say, who’ve been very fortunate in life, have the ability to pay a little bit more," Plouffe said.
President Obama enters the long-term deficit reduction talks after getting months of criticism for his lack of participation. White House officials said in December the president wanted to wait for a Republican proposal before outlining his plans.
He’s not the only one expected to announce a deficit reduction outline soon. The so-called "Gang of Six," led by Sen. Mark Warner, D-VA, and Saxby Chambliss, R-GA, are close to finalizing a budget proposal that cuts the deficit by $4 trillion over 10 years. Their proposals are expected to be similar to those of President Obama’s fiscal commission, including eliminating some military and domestic programs, changing the tax code, cutting some tax breaks and lowering income-tax rates.
But no matter how many spending cuts Washington implements, it can’t avoid raising the debt limit, U.S. Treasury Secretary Timothy F. Geithner wrote last week in a letter to lawmakers.
Federal debt is around $14.2 trillion, dangerously close to the $14.294 trillion limit. Public debt is growing by an average of $125 billion per month.
The country will hit its debt limit no later than May 16, according to the U.S. Treasury Department. The government will be able to avoid default through accounting measures and other maneuvers, but will run out of options by the beginning of July.
Geithner has said the United States defaulting on debt would have a massive effect on the global financial system and could trigger a crisis worse than the one from which the economy is still emerging. The United States would face much higher interest rates, and borrowing costs for individuals and businesses would increase.
Many Republicans refuse to move the limit unless Democrats are willing to make some significant concessions.
"I can tell you this: There will not be an increase in the debt limit without something really, really big attached to it," House Speaker John Boehner, R-OH, said at an April 9 fundraiser.
A rumored idea as to what the "really big" attachment Republicans may request includes a balanced budget amendment to the U.S. Constitution.
This article was republished with permission from Money Morning.