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President Barack Obama at George Washington University, Washington DC, April 13, 2011.
President Barack Obama on Wednesday
proposed $4trn in spending cuts over 12 years as he portrayed Republicans as
supporters of "tax cuts for millionaires and billionaires" while
demanding sacrifice from the nation's seniors, poor and the middle class.
Republicans have said they will
refuse to vote for a higher debt ceiling, which now stands at $14.294trn, unless
the measure includes a deficit-reduction plan.
"To meet our fiscal
challenge, we will need to make reforms,'' Obama said.
"We will all need to make sacrifices. But we do not have to sacrifice the
America we believe in."
Republicans reaffirmed their implacable opposition to tax increases.
"If we're going to resolve our differences and do something meaningful, raising
taxes will not be part of that," Speaker of Congress John Boehner said.
In California where tax increases
require two-thirds support in the legislature, Governor Jerry Brown, is seeking
authorization to ask California voters to extend expiring taxes to avoid more
draconian budget cuts, but is facing fierce opposition from state politicians.
He needs two Republican votes in the Senate and two in the Assembly to reach the
President Obama's deficit reduction
plan follows a $4.4trn total of cuts over 10 years announced by the Republicans
last week. The president said on Wednesday he rejects the fundamental changes to
Medicare and Medicaid, federal services for the elderly and poor, proposed by
Republicans and is relying in part on tax increases on wealthy Americans.
In a 44-minute speech to an audience
at George Washington University, which included Representative Paul Ryan of
Wisconsin, the author of the Republican plan, Obama attacked the Republicans
“There’s nothing serious
about a plan that claims to reduce the deficit by spending a trillion dollars on
tax cuts for millionaires and billionaires,” he said.
“There’s nothing courageous about asking for sacrifice
from those who can least afford it and don’t have any clout on Capitol Hill.”
The president said his framework
would seek a balanced approach to bringing down the deficit, with three dollars
of spending cuts and interest savings for every one dollar from tax reform that
contributes to deficit reduction. This is consistent with the bipartisan Fiscal
said this week that US general government US debt as a ratio of GDP will
rise from 72% in 2011 to 86% in 2016 in the absence of big changes.
The US budget deficit for 2011 is
forecast at 10.8% -- the same level as Ireland's and the deficit
would be at 6% in 2016.
The Obama plan is to bring annual deficits down to 2.5%.
Prof. Peter Morici of the University of Maryland
comments: President’s Budget Speech Offers Little to Cheer
"President Obama’s plan to balance the budget was a brilliant political
speech -- - highlighting weakness in the Republican deficit reduction proposal
drafted by Congressman Paul Ryan—but it offered little new or encouraging that
would correct Washington’s troubled finances.
Once again, President Obama blamed President Bush for the mess—citing two
wars and tax cuts that were not funded—when his own political party is more
In 2007, the last year before the financial crisis and former Speaker
Nancy Pelosi and the Democrats took control of Congress, the deficit was a quite
manageable $161bn. Over the next four years, spending has increased $1.1trn and
the deficit jumped to $1.6trn.
The President’s February budget projected the deficit would fall to $772bn
by 2022. However, that forecast is dubious, because it assumes 4 percent growth
over the next four years, which few economists would endorse, and cuts in
Medicare payments to physicians and hospitals few political observers believe
will materialize. More likely, deficits will exceed $1trn, or even $1.5trn for
the next decade, without further action.
In his speech the President claimed to be tabling $4trn in additional cuts
over twelve years, but there was little new from his February budget.
Mr. Obama proposed higher taxes on families earning more than $200,000 a
year. While that may be good populist politics, those tax increases were already
in his February budget, and presenting those as additional deficit reduction is
deception not worthy of his high office.
As he suggested, some loopholes could be plugged in the corporate taxes;
however, moderate Democrats and Republicans agree U.S. corporate taxes are too
high for American companies to be competitive. Most revenue that might be found
fixing abuses will eventually have to be put into lower corporate taxes for
those firms bearing an unfair share of the burden.
Central to the fiscal mess are the rapidly growing bills for Medicaid and
Medicare, and Social Security. The president suggested using huge Medicare
purchases to negotiate lower drug prices, but he offered no specifics about how
that is to be done.
For the rest of health care spending, he again asserted the regulatory
panels and boards established by 2010 health care reform law would cut costs;
but the jump in 2011 health insurance premiums reveals those measures are
Federal and state governments pay 55 cents of every dollar Americans spend
on health care, and government reimbursements, not a private market, determine
most prices for health services.
Germany and Holland, like the United States, have systems of private
insurers, and government reimbursements pay nearly 80 percent of health care
costs. Yet, in those countries health care costs are about half the nearly
$8,000 America spends for each citizen, because the German and Dutch governments
do a better job of regulating prices.
Neither the President nor Congressional Republicans have explained how
they are going to improve on subpar US regulatory performance and
significantly lower prices for health care services. Until they do, it hard to
take either party’s deficit reduction plans seriously.
The Republican plan - - Congressman Paul Ryan’s Path to Prosperity - -
would replace federal Medicaid with block grants to the states and Medicare with
vouchers to seniors to buy private insurance; but those tactics, as the
President correctly asserts, would merely shift the problem of paying too much
for health care services onto the backs of the poor and elderly.
On Social Security, the basic problems are that Americans are living much
longer and retiring long before their health requires, and the ratio of retirees
to working age Americans is too high and rising. Simply, the retirement age
should be raised to 70 for Americans under the age of 55, and neither the
President nor Congressional Republicans want to take the political heat for
telling Americans the hard truth.
When Democrats and Republicans are willing to start seriously regulating
prices for health services, and embrace a substantial and immediate increase in
the retirement age, Americans will know they are serious.
Until then, the political speeches will continue and investors should
conclude that U.S. Treasury securities are a risky long-term investment. It’s
high time Standard & Poor’s and other agencies downgraded the federal
governments’ AAA bond rating."