Center for American Progress

President Obama’s Plan for Dealing with the Deficit

President Obama’s Plan for Dealing with the Deficit

A Balanced Plan that Most Americans Embrace

Michael Ettlinger and Michael Linden examine the differences between the president’s plan announced today and the House plan enacted earlier this year.

President Barack Obama gestures while speaking in the Rose Garden of the White House in Washington, Monday, September 19, 2011. (AP/Evan Vucci)
President Barack Obama gestures while speaking in the Rose Garden of the White House in Washington, Monday, September 19, 2011. (AP/Evan Vucci)

There is little disagreement among Americans over the need for long-term federal deficit reduction. We cannot maintain all of our current spending and tax policies without accumulating a dangerous level of debt. On this, nearly everyone—left, right, and center—agrees. The differences are over the best ways to reduce the deficit, who should bear the burden, and how quickly we should be moving to reduce the deficit given the current jobs crisis. The plan released today by President Barack Obama offers a balanced plan that stands in stark contrast to the extreme vision embodied in the budget resolution passed this spring by Republicans in the House of Representatives.

First, President Obama’s plan. It is the embodiment of the “balanced approach” that he has been calling for from the beginning—and that we know from poll after poll that the American people want. His plan includes about $1 trillion in cuts to domestic programs and the military over the next 10 years plus another $1 trillion in savings from reduced overseas military operations. It identifies $250 billion in cuts from programs such as agriculture subsidies, which experts from both sides have pointed to as being inefficient or outdated. And it includes $320 billion in savings from Medicare and Medicaid but accomplishes those savings without merely shifting the burden of health care costs on senior citizens. Together, the president’s plan relies on more than $3.5 trillion in spending reductions over the next 10 years.

The president’s plan also asks the wealthiest to pitch in to help bring down the federal deficit. His plan includes about $1.5 trillion in additional revenue, compared to what the government would collect under current revenue policies. Over the past 15 years, effective tax rates (the amount of taxes someone pays as a share of their income) for the wealthy have plunged. Since the mid-1990s, the effective rate for millionaires has declined by nearly a quarter. The effective rate for the richest 400 taxpayers in the country has been slashed even more, dropping by nearly 50 percent.

President Obama is simply asking these households, who have seen their real incomes skyrocket at the same time that their tax rates have plunged, to pitch in along with the middle class. This revenue goes primarily to deficit reduction but also to pay for the job creation plan the president proposed earlier in the month.

a balanced plan for dealing with defcits

Of course, the tax aspect of the president’s plan will prompt howls of protest from the right wing. But it is worth noting that the revenue level in the president’s proposal is lower than what the chairmen of the president’s fiscal commission called for, lower than what the Bipartisan Policy Center’s debt reduction task force called for, lower than what the bipartisan Gang of Six called for, and lower than what the Center for American Progress called for. The inevitable, stale charges of “class warfare” notwithstanding, it is obvious that there is actually room for even more revenue as part of long-term deficit reduction.

For all its balance and common sense, the president’s plan will still be painful to implement. Deficit reduction always is. The hundreds of billions in cuts to domestic programs, public services, and vital economic investments will be particularly difficult to stomach. But the overall sacrifices will be broadly shared, which lessens the burden that any one segment of society—seniors, children, students, low-income families, the middle class, the wealthy—will have to bear on its own. This fact, more than any other, sets the president’s plan apart from the alternative.

That alternative is the budget plan, passed by the Republican-controlled House of Representatives this past spring. The centerpiece of that plan is a huge tax cut for the wealthy, paid for, in part, by asking everyone else to pay more. Under the House plan, seniors would pay more for health care and lose the guarantee that Medicare and Medicaid would always be there for them when they need it. Education, transportation, scientific research, and other basic public investments would be slashed to levels not seen in generations. And the Republican plan contains absolutely no measures to help spur job creation.

In fact, it dives immediately into massive deficit reduction, which economists of all stripes say is precisely the wrong thing to do at this moment. Fundamentally, the House plan is to ask more of the middle class, of seniors, and of the poor, all the while giving additional tax benefits to the wealthy—while doing nothing to immediately address the jobs situation.

If we want to achieve significant deficit reduction over the next 10 years, these are the choices we are going to have to make. If we choose to keep all of our current tax policies in place—extending all the Bush tax cuts as well as every existing tax break for millionaires and corporations—or if we go even further and continue to cut taxes for the wealthy, we simply will not be able to maintain popular and successful programs such as Medicare, Medicaid, and Social Security in their current forms, let alone fund medical research, rebuild our crumbling roads and bridges, improve our educational system, invest in renewable energy, or provide a strong social safety net.

The other option is to make reasonable changes to the tax code that raise more money from those most able to afford the additional costs, so that the cuts that the middle class, the poor, and seniors have to bear are less damaging. That’s the definition of a balanced approach, and that is what President Obama offered today.

This is a choice the American people will have to make now and over the long term. It won’t happen in one budget or in one election. But over time the public’s preference will win. And for all the antigovernment platitudes and noise, the American people may want spending cut as part of deficit reduction but they value the programs that account for the vast bulk of public spending. And with taxes at record lows, further tax cutting at the price of slashing those programs is not what the American voters want. They want the type of balanced approach the president is offering.

Michael Ettlinger is the Vice President for Economic Policy at the Center for American Progress. Michael Linden is the Director for Tax and Budget Policy at the Center.

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Michael Ettlinger

Vice President, Economic Policy

Michael Linden

Managing Director, Economic Policy

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