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With the scars from the summer's budget battles still fresh, U.S. President Barack Obama yesterday (Monday) unveiled a deficit-reduction plan that is aimed more at winning votes in the 2012 election than it was to win support from congressional Republicans.
The president's deficit reduction plan includes approximately equal amounts of spending cuts and revenue increases to reach its target of $3 trillion over the next decade.
The proposals won't pass – and even if they did, they probably don't go far enough to fix the ailing U.S economy, said Martin Hutchinson, a Money Morning columnist and former global merchant banker who's an expert on how the political process impacts the world economy.
"Most of Obama's proposals are bait for his left wing," Hutchinson said in an interview yesterday. "However, reducing deductions for such things as home mortgage interest and charities, if done in moderation (say, make them deductible only to a 20% tax rate), could yield a lot of income and might even do the economy good, lessening wasteful resources devoted to housing and the nonprofit sector."
President Obama's spending cuts – unveiled in a morning speech – included:
- $1.1 trillion saved from winding down the wars in Iraq and Afghanistan.
- $248 billion from Medicare savings (mostly from reducing overpayments).
- And $430 billion from savings on interest payments.
Revenue-increase proposals include:
- An expiration of some Bush-era tax cuts expire for those making more than $250,000, a move that would yield $800 billion,
- Capping certain exemptions, such as itemized deductions for that same high-income group, which would generate $400 billion.
- A new minimum tax on millionaires to make sure the nation's hyper-wealthy pay at least the same tax rate as average wage earners.
- And closing tax loopholes for certain wealthy individuals and large corporations to bring in another $300 billion.
A Doomed Deficit-Reduction Plan?
Mimicking the strategic obstinance employed by the Republicans during the summer debt-ceiling debate, President Obama said he would "veto any bill that changes benefits for those who rely onMedicarebut does not raise serious revenues by asking the wealthiest Americans and biggest corporations to pay their fair share."
Republicans, who have not backed off their promise to reject any deficit-reduction plan that includes revenue increases, said President Obama's proposals would not help the congressional joint "supercommittee" charged with developing a plan to reduce the deficit by at least $1.5 trillion.
"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. The good news is that the Joint Committee is taking this issue far more seriously than the White House," Senate Minority Leader Mitch McConnell, R-KY, said in a statement.
By the terms of the deal reached in the debt-ceiling compromise in August, the 12-member Joint Committee has until Nov. 23 to submit its proposal to reduce the deficit. That proposal then must be passed by Congress by Dec. 23, or a series of automatic cuts will go into effect in 2012.
That scenario would result in an arbitrary 2% budget cut to all agencies of the federal government, with a few exceptions – such as Social Security, Medicaid and civilian and military retirement.
Populist Appeal
Although President Obama obviously would prefer that Republicans and Democrats alike on the committee adopt his deficit-reduction plan, his speech yesterday made it clear that he wants to score political points regardless of the outcome. That's why his speech touched on populist themes that would appeal to working-class voters.
"Middle-class taxpayers shouldn't pay a higher tax rate than millionaires and billionaires," President Obama said. "I reject the idea that asking a hedge fund manager to pay the same tax rate as a plumber or teacher is class warfare. I think it's just the right thing to do."
He also devoted part of his speech to making congressional Republicans appear unreasonable.
In a reference to Speaker of the House John Boehner, R-OH, President Obama stated that "the Speaker says we can't have it "My way or the highway,' and then basically says "My way – or the highway.'That's not smart. It's not right. If we're going to meet our responsibilities, we have to do it together."
Daniel Gross, in his "Contrarian Indicator" column on Yahoo! Finance, said that President Obama – by unveiling a plan aimed at resonating with middle-class America – is trying to capitalize on sentiment that favors his position.
"The public tends to favor preserving entitlements in their existing form, cutting spending, and raising taxes on the wealthy and corporations," Gross wrote. "Can President Obama translate those [deficit-reduction-plan] policy preferences into political preferences?"
News and Related Story Links:
- Money Morning:
Obama's Jobs Plan Will Barely Dent Unemployment - Money Morning:
President Obama Tackles Deficit Reduction and Debt Ceiling as Budget Battle Continues - White House.gov:
President Obama's Debt Reduction Proposal to Congress - The Washington Post:
Obama proposes new taxes on wealthy for half of debt plan - Los Angeles Times:
Obama outlines $3-trillion deficit plan, rejects 'class warfare' claim - The New York Times:
Obama Vows Veto if Deficit Plan Has No Tax Increases - The Hill:
McConnell, Boehner: Obama proposal doesn't help supercommittee. - Money Morning:
These U.S. Companies Made Billions in Profits – And Received a Federal Tax Refund!
About the Author
Dave has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.
I am curious, what do you expect the President to do? If you think that Republican plans for the economy (cut taxes on the rich and corporations) is a viable plan, then anything you write is suspect. If one looks at current Govt policies from over the last 11 years, it is clear they favor those who have money. These policies have accelerated the movement of the countries wealth from the middle/poor into the hands of the wealthy. So, taxing those who do nothing but save their excess wealth is required (unless you can talk the wealthy into spending their wealth (in this country hopefully)), we will never gout out of this problem. The Republicans are right about one thing, "we have a spending problem". Our problem is that we don't spend enough to support all the people we have in the country.
Tax reform is badly needed. As indicated in the article, there are too many loopholes for those with money to keep the money, even as others pay the full rate. If that is fixed, marginal rates could be lowered for all, and revenue would not be negatively impacted.
Hmmmm.
So for the uber wealthy (whatever that means) how about an enforceable transfer tax?
Either they spend, on the open market, xx% of their wealth annually, or the state and fed govt's get those $$$$ BUT ONLY for debt reduction. (And they MUST be prohibited from taking on new debt to replace the retired debt.)
The devil is in the details.
Just more of the usual Obama class warfare claptrap. He's an Alinskyite rabble rouser through and through, trying to whip the malcontents into a frenzy, and he just can't help it. Enough already!
Sir
Fact is, as much as I despise Obama, raising taxes on the very rich is not a bad idea. They have benefited more than anyone form living in America. But I too see his politics in his newest bad legislation.
So far Obama and Congress have taken money from the middle class and aged. No SS or DAV increase in two years. Inflation contiues to grow and they exclude Food and Energy from a phoney Consumer Pirce Index. The Personal Exemption and Standard Deduction have not inclresed for 2 years.
Additionally the tax code keeps the poor dependent on the Government, breaks down the family unit and encourages cheating. I'm talking about the Earned Income Credit and Head of Household. IRS turns a blind eye because it would not be Politically Correct to catch these tax cheats.
Paul G Huber, CPA
Paul, as a CPA you should know better than to support any additional taxes on the wealthy. You sir, should know that every dollar given to the government is a dollar that cannot be saved or invested to provide jobs.
Of all people, you should know that reducing the assets of corporations and individuals via taxes is the absolute worst thing that can happen to the unemployed.
Regards,
RER
If they do not get to keep the tax reductions GWB gave them – That could reduce / terminate / the jobs they are creating by building more modern and efficient factories in China. The same new Chinese factories with which US's older ones can not compete, especially as China also has lower wage cost.
The problem in this country is that we should be promoting more rich people.More people striving to better themselves.Not bringing down the successful to the level of others,who are satisfied not doing much.We should greatly simplify the tax system and have one % rate for all income levels.One rate would be progressive,as seen in this example.Someone grossing $10K and paying 15%,would pay $1,500 in taxes.They would receive more than this in govt aid,so would be a net drain.Someone grossing $10 million,would pay $1.5million in tax and receive much less from govt,than paid in taxes.A totally flat tax that is low enough to not give incentives for tax evasion/avoidance would bring in more revenue for govt,would end all this division in the country and save $billions in tax preparation.Otherwise consumption taxes,which are the same for all incomes,would also be better than our current mess.
What most people don't realize is that the tax rate on wealthy people IS higher than on most other incomes. HOWEVER, the wealthiest people in America have been given more tax breaks under the current tax codes and in many cases that allows them to pay less taxes %wise than the average taxpayer. This is the inequity that needs to be addressed.
You think that allowing the wealthy to avoid taxes helps promote business, but in fact it only allows them to put more money in their pockets because they are not investing in business in the U.S.. When they hoard this money, investing in gold, silver, and foreign stocks and currencies, they are not doing anything to improve the economy, they are only further lining their pockets. While taxing everybody at the same rate sounds great, the lowest income taxpayer and the middle income taxpayer will still shoulder the highest burden, AS THEY ARE NOW. The tax rates need to be the same as they are now, but the loopholes for the wealthy need to be eliminated.
While loopholes for wealthy individual taxpayers need to be eliminated, there need to be more tax breaks for businesses investing in America and new jobs. The corporate tax rate of 35% needs to be lowered to 25% and there need to be more tax breaks for companies who create new jobs. This is part of what Obama's new jobs bill is trying to address. But the Republican Party will not let it pass because "what is good for the American people and the U.S. economy is not good for the Republican Party" until after the election. Wake up America!!!!!!
KEEPING THEM HONEST: The Rebuke Message from Middle Class Americans: Mr. Boehner, Tea Party and Eric Cantor, Kevin McCarthy (Bakersfield) and Paul Ryan and Senator McConnell and your 43 filibuster obstructionists, more words of doing nothing from you! Americans, particularly us independents, THE NAME OF THE REPUBLICAN GAME PLAN IS TO ENSURE THAT UMEMPLOYED AMERICANS STAY UNEMPLOYED AND TO MAKE SURE NO ACTION IN CONGRESS SO THAT OUR AMERICAN ECONOMY STAYS IN NEAR DEPRESSION! THEY THINK THE AMERICAN MIDDLE CLASS IS SO STUPID! THEY THINK WE WILL VOTE FOR THEM NEXT ELECTION! We are furious?
According to Independent Senator Bernie Sanders and retired conservative Senator Allen Simpson, it is now clear that the Republicans /hypocrites made pledges that their “only” plan is continuing its Class War against us to protect their Aristocracy of greedy Millionaires and Billionaires like the Grover Norquest, Russ Limbaugh, Rupert Murdock and Koch Brothers that provides them campaign funds to continue not paying their fair share to support their nation. The plan was never about creating American jobs for the unemployed middle class! Mr. Boehner is not interested unemployed Americans! Where are the jobs you campaigned on? Mr. President, Middle America is asking! Where is the share sacrifice?
And now, this so-called Super committee made up of the same group of idiots! Remember this in November!; you will have a debt to repay! Message from Middle Class American Citizens.
OBAMA! and his Democrat minions have already taken $500 million out of medicare to apply to the obamacare . So he ought to be made to shut his piehole on that score . As I understand it , the Ultra rich (or anyone who invest for that matter) , benefit in large part from being taxed on capital gains at %15 . Thing is , encouragement to put capital to work is good for the poorest among us , because of the jobs created . It appears to me for all the world ;
that Boss Zero is hewing to that dastardly Cloward-Pivens strategy . Which is to spend the government into Oblivion , so that we may start all over from scratch to build a more fair utopia . Where the shiftless get their fair share , because of their inherrant human worth ! Thing is ; if you don't work , neither should you eat .
JJ, you are simultaneously naive and dangerous and most likely earning over 250k.
How much deficit reduction would we have if the bill included a 20% reduction in congressional salaries? Throw in a a little bit of reduction in Federal pension and medical plans for all of our Washington politicians, and we would see some REAL savings. Imagine—these guys get benefit plans for life that are not available to the private sector, while serving only minimal terms in office. I wish I could have voted for my salary increases and benefit plans. What we need—badly—is shared sacrifice. Enough of this talk of class warfare. I'm already severely wounded as are other millions, while the privileged few make gains on our losses. We're sinking badly and shooting holes in the bottom of the boat to let the water out is not a solution. While we're at it, read some history books and see what happens when wealth disparity gets out of hand. End of sermon.
Good sermon. Fed elected officials should serve without ANY pensions – might make for automatic term limits.
There is a distinct possibility that we are all a little bit crazy over our current state of affairs. It is sad
that we hear all of this boo hooing over we need more money, yet the pork earmarks on the
bills being passed are staggering. COME ON gov't wake up–a few Billion here and there adds
up to some significant money eventually.
Isn't it funny that I hardly ever heard of Trillions before this waste and spend regime hit Washington.
They spent more money than all the other administrations combined in history. Why are we not keying
in on the real problem. We don't have a liquidity problem, WE HAVE A SPENDING PROBLEM.
Increased taxes so the Fed's can give more money to the most terrible people on the planet somehow
frosts my jaws. PORK BARREL SPENDING has nothing to do with carrying out the duties of the Federal
Government.
David (author of the above article) you headline is PERFECT. THANK YOU, cliff
Loopholes or not, the corporations and other businesses, in the long run, pay NO taxes. WE, their customers i.e., the bottom rung of the wealth ladder, pay the taxes for them via the prices of their products.
So, if you cut out the "loopholes" then retail prices will increase so the us bottom rung dwellers will STILL pay the taxes for the upper rungs.
What to do? Marry into money??
&*(#^%&*@! if I know.
I read the conservative Weekly Standard and the very liberal Nation. Both have some good ideas. Solution! tape shut the mouths of all Republicans and Demmocrats for one month (or maybe just eliminate their wages w/no chance of recovering them). Force them to go without food until they can come up with solutions (we already know them), and vote them as legislation. The real problem is with Congresspeople and the public that votes for them.
Its interesting to see all different points of view, and ideas thrown around. Its also interesting to see how those who disagree with someone's view point then start throwing word bombs at each other.
I think everyone would logically agree that our government no matter what party you agree with has been over spending our tax money for years upon years. The problem is they are not accountable for it. They can give themselves raises with our money as they see fit. They can ear mark to their special interest groups as they see fit. They go out fund raising for our money, to then spend as they see fit, and the list goes on and on. Its very easy for them to spend our money then spin their political view why with little to no accountability.
Again, logically you cannot continue to spend more they you bring in over and over. Yes they have all done it, but unfortunately our current president has factually spent more given his time in office. We can all argue how much was his fault prior to coming into office or not, but no matter what to keep spending and spending will not resolve our debt. We cannot spend our way out of debt. If we really want to play fair from a tax perspective and get everyone including the rich to pay their fair share, then we must have a flat tax. That eliminates any loop holes period. Everyone pays their share percentage. Then its end of story. Any who doesn't then of course gets fined, jail, etc. I don't think our government wants to do this because it would cause most of the IRS jobs and unfortunately our government has created more jobs for themselves again with our tax money.
As for raising taxes on anyone in order to increase money to help pay the debt, my concern is (again doesn't matter which party we are talking about) our Government has and continues to mismanage our money for years. Giving them more of our tax money to mismanage isn't logical to me. They have failed for years, yet spin everything for a cause. If you have your own business then there will be times where you have to make very difficult decisions which means someone has to either be let go, get a reduction in pay, loose medical coverage, etc. Those are the harsh realities of running a business and our country was started on small businesses. Those are the facts. We cannot continue to give our tax money to every single cause, and to other countries simply in the name of foreign relations. How many of those countries are giving us money to us. How many really care about our country. All they want is our money. It's flat out foolish. So again very hard decisions have to be made when running a business or our country.
Lets use an example even though it may not be the best example but lets try to make a point here. If someone you know personally came to you every week asking for money because they needed to eat, but you then found out they spend it on drugs instead, will you just keep giving them money. Lets say you kept giving them money because you have it, but then learned that more friends need it but they need it to feed their kids because they lost their jobs and are flat out broke. Because more friends need money this continues to grow, and now you have a problem because you can now only afford a couple of them and still pay all your bills including buying food for your own family. My guess is you will then make a hard decision, and although you care for all your friends, you either decide which ones to give money to, or you may decide to be fair to them all, none get anymore. Or you say I'll give to my best friend so his kids and himself can eat and you can still feed your own family. That means everyone else is out including the one who wasting it on drugs.
In a many areas our country is doing this. For example if we have a mother with 3 kids living on welfare who decides to get pregnant again and again, in my humble opinion this is an example where we have to make a hard decision. She already receives welfare for herself and 3 kids, but once she has more then she feels and is currently entitled for more. Where doe is stop.
Same can be said about anyone who has decided to come here illegally and does not want to participate in the same responsibilities as one born here legally with a legal social security card paying taxes, etc. Is it OK for anyone here legally to have to pay and pay year after year for those here illegally. Tell me how that can be fair. I understand those wanting to come to our great country because of our freedoms, and of course get free medical, care, etc. Facts are nothing is free and again hard decisions must be made and fairly. It has nothing to do with race, status, etc. Its factually the issue and should not be played for political interest or gain.
The harsh reality is we don't make the hard decisions and then turn it in to a political battle to play against each other to show that someone who is conservative has not heart verses someone who is more liberal. Its pretty sad to see how we play against each other political instead of really agreeing to make the hard factual decisions. The facts are we can not save everyone in the whole world. If people are willing to make the choose the decisions they make, then they should be able to live with the consequences. If the mother on welfare was told she would get no more money after three kids then its her choice from that point on and must live with the consequences. The same for ever decision.
Fact is unless we do something about illegal immigration ,in which millions live scott free off our system, we are doom!