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.
- 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.