President Barack Obama vowed to cut $4 trillion in cumulative deficits within 12 years through a combination spending cuts and tax increases, setting the stage for a fight with congressional Republicans over the nation’s priorities.
In presenting his long-term plan for closing the budget shortfall, Obama set a target of reducing the annual U.S. deficit to 2.5 percent of gross domestic product by 2015, compared with 10.9 percent of GDP projected for this year. He reiterated his support for overhauling the tax code to lower rates while closing loopholes and ending some breaks to increase revenue.
“We have to live within our means, reduce our deficit, and get back on a path that will allow us to pay down our debt,” Obama said in prepared remarks for a speech today at George Washington University in the capital. “And we have to do it in a way that protects the recovery.”
Over the next five years, the administration forecasts the government will pile up a cumulative deficit of $3.8 trillion; over the decade, the cumulative deficits would rise to $7.2 trillion. With today’s proposal, Obama is going beyond the fiscal 2012 budget he presented on Feb. 14, which forecast cutting the deficit by $1.1 trillion over a decade.
As with his budget, Obama in his latest plan calls for ending the Bush-era tax cuts for the wealthiest Americans, which are set to expire in 2012.
To achieve his new goals, the president is urging Congress to pass a “debt failsafe” that would trigger across-the-board spending cuts and tax changes if the debt-to-GDP ratio hasn’t stabilized by 2014, according to an administration fact sheet. The automatic cuts wouldn’t apply to entitlements, including Social Security, Medicare, and programs intended for low-income Americans.
The plan would target government spending, from the Pentagon to the Department of Agriculture. Obama proposes saving $400 billion in current and future defense spending.
U.S. stocks fell, sending the Standard & Poor’s 500 Index to its longest slump since July. Defense contractors were among the biggest decliners. Lockheed Martin Corp. (LMT) fell 2.5 percent at 1 p.m., the third-biggest percentage drop in the S&P 500. Raytheon Co. (RTN), down 2.3 percent, followed with the fourth- biggest decline. General Dynamics Corp. (GD) fell 2.2 percent and Northrop Grumman Corp. (NOC) dropped 2.1 percent. Boeing Co. (BA), down 1.8 percent, had the biggest percentage drop among 30 stocks in the Dow Jones Industrial Average.
Signaling the political fight his plan faces, Republican congressional leaders said after getting briefed by the president that they won’t accept tax increases as part of a deficit-cutting plan.
The president “heard us loud and clear” on the tax issue, House Speaker John Boehner of Ohio told reporters after the White House meeting. “If we are going resolve our differences and do something meaningful, raising taxes will not be part of that.”
Most of the reductions proposed by Obama will be phased in to the second half of the 12-year timeframe, to avoid hurting the economic recovery, according to the White House.
The president borrowed some ideas from the Simpson-Bowles debt commission he created last year, drawing on the co- chairmen’s recommendation for a simpler, fairer tax code that lowers rates and increases revenue. He also adopted the recommendations on non-security discretionary spending, saving $770 billion by 2023.
“If our creditors start worrying that we may be unable to pay back our debts, it could drive up interest rates for everyone who borrows money, making it harder for businesses to expand and hire,” Obama said in his prepared remarks.
The administration is aiming to provide a counterpoint to the budget plan released last week by Representative Paul Ryan, which relies on deep cuts in federal spending to trim the deficit. Obama will specifically reject the Wisconsin Republican’s idea of a voucher-like system for future Medicare recipients, a person said.
Spending Cuts, Taxes
The recommendations from the debt commission’s co- chairmen, former Senator Alan Simpson, a Republican from Wyoming, and former Clinton administration official Erskine Bowles, a Democrat, both of whom were at the speech, would cut almost $4 trillion over the period. Both used a combination of spending cuts and higher revenue.
Ryan’s plan would cut the deficit by $4.4 trillion over 10 years, primarily through reductions in federal spending. He proposes to reduce top income and corporate tax rates from 35 percent to 25 percent.
A broad group of Senate Republicans and Democrats has been pressing Obama to endorse a goal of cutting the deficit by at least $4 trillion, in line with the plans by the debt panel and Ryan.
Some lawmakers were urging Obama before he spoke to match the reductions proposed by the debt commission.
“You need a package that’s in that range -- roughly $4 trillion -- to get the debt back on track and to secure a strong future for the United States,” Democratic Senator Kent Conrad of North Dakota, head of his chamber’s Budget Committee, said in an interview yesterday.