In a blunt rejoinder to congressional Republicans, President Barack Obama called for $1.5 trillion in new taxes Monday, part of a total 10-year deficit reduction package totaling more than $3 trillion. He vowed to veto any deficit reduction package that cuts benefits to Medicare recipients but does not raise new revenues.
"We can't just cut our way out of this hole," the president said.
The president's proposal would predominantly hit upper income taxpayers but would also reduce spending in mandatory benefit programs, including Medicare and Medicaid, by $580 billion. It also counts savings of $1 trillion over 10 years from the withdrawal of troops from Iraq and Afghanistan.
The deficit reduction plan represents an economic bookend to the $447 billion in tax cuts and new public works spending that Obama has proposed as a short-term measure to stimulate the economy and create jobs. And it gives the president a voice in a process that will be dominated by a joint congressional committee charged with recommending deficit reductions of up to $1.5 trillion.
His plan served as a sharp counterpoint to Republican lawmakers, who have insisted that tax increases should play no part in taming the nation's escalating national debt. Obama's plan would end Bush-era tax cuts for top earners and would limit their deductions.
"It's only right we ask everyone to pay their fair share," Obama said from the Rose Garden at the White House.
In issuing his threat to veto any Medicare benefits that aren't paired with tax increases on upper-income people, Obama said: "I will not support any plan that puts all the burden for closing our deficit on ordinary Americans."
Responding to a complaint from Republicans about his proposed tax on the wealthy, Obama added: "This is not class warfare. It's math."
The Republican reaction was swift and derisive.
"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," Senate Republican leader Mitch McConnell said in a statement issued minutes after the president's announcement. "The good news is that the Joint Committee is taking this issue far more seriously than the White House."
Obama's proposal comes amid Democratic demands that Obama take a tougher stance against Republicans. And while the plan stands little chance of passing Congress, its populist pitch is one that the White House believes the public can support.
The core of the president's plan totals just over $2 trillion in deficit reduction over 10 years. It would let Bush-era tax cuts for upper income earners expire, limit deductions for wealthier filers and close loopholes and end some corporate tax breaks. It also would cut $580 billion from mandatory programs, including $248 billion from Medicare. It also targets subsidies to farmers and benefits programs for federal employees.
Officials cast Obama's plan as his vision for deficit reduction, and distinguished it from the negotiations he had with House Speaker John Boehner in July as Obama sought to avoid a government default.
As a result, Obama's proposal includes no changes in Social Security and no increase in the Medicare eligibility age, which the president had been willing to accept this summer.
Administration officials also said that Obama's $1.5 trillion in new taxes is a goal that Congress could achieve through a broad overhaul of the tax code. They said the president's specific proposals represent one way to get to that goal under the existing tax code.
Coupled with about $1 trillion in cuts already approved by Congress and signed by the president, overall deficit reduction would total more than $4 trillion, a number many economists cite as a minimum threshold to bring the nation's debt under control.
Key features of Obama's plan:
--$1.5 trillion in new revenue, which would include about $800 billion realized over 10 years from repealing the Bush-era tax rates for couples making more than $250,000. It also would place limits on deductions for wealthy filers and end certain corporate loopholes and subsidies for oil and gas companies.
--$580 billion in cuts in mandatory benefit programs, including $248 billion in Medicare and $72 billion in Medicaid and other health programs. Other mandatory benefit programs include farm subsidies and federal employee benefits. Administration officials said 90 percent of the $248 billion in 10-year Medicare cuts would be squeezed from service providers. The plan does shift some additional costs to beneficiaries, but those changes would not start until 2017.
--$430 billion in savings from lower interest payment on the national debt.
-- $1 trillion in savings from drawing down military forces from Iraq and Afghanistan.
Republicans have ridiculed the war savings as gimmicky, but House Republicans included them in their budget proposal this year and Boehner had agreed to count them as savings during debt ceiling negotiations with the president this summer.
Illustrating Obama's populist pitch on tax revenue, he suggested that Congress establish a minimum tax on taxpayers making $1 million or more in income. The measure -- the White House calls it the "Buffett Rule" for billionaire investor Warren Buffett -- is designed to prevent millionaires from taking advantage of lower tax rates on investment earnings than what middle-income taxpayers pay on their wages.
That minimum rate, however, is not included in the White House revenue projections. Officials said it was a suggestion for Congress if it were to undertake an overhaul of the tax code.
.At issue is the difference between a taxpayer's tax bracket and the effective tax rate that taxpayer pays. Millionaires face a 35 percent tax bracket, while middle income filers fall in the 15 or 25 percent bracket. But investment income is taxed at 15 percent and Buffett has complained that he and other wealthy people have been "coddled long enough" and shouldn't be paying a smaller share of their income in federal taxes than middle-class taxpayers.