Tuesday, February 19, 2013

Obama's Prosperity Plan: Tax, Borrow, Spend

Former deficit panel leaders push new fiscal plan as Obama renews call for tax hikes

The two men at the helm of President Obama's discarded deficit-reduction commission are pushing Washington once again to come up with a bigger and better fiscal deal, as the president prepares to make yet another call for Congress to avert imminent spending cuts. 

The president, in remarks late Tuesday morning, plans to urge congressional Republicans to accept more tax revenue in order to avert sweeping cuts poised to hit March 1 -- though Congress is out of town for the week. The plea marks the latest effort by Obama to get lawmakers to at least pass a short-term fix, in the face of increasing resistance among Republicans who say Congress should not keep kicking the can. 

Erskine Bowles and Alan Simpson, the former co-chairmen of the president's deficit-reduction commission who for years have been urging Washington to stop kicking the can, got in front of the president early Tuesday morning to push a plan of their own. 

"Over the medium and long-term, our debt is projected to continue growing faster than the economy. It is simply on an unsustainable path," they said in a statement. 

The two fiscal hawks pitched a plan to avert the looming spending cuts -- heavy cuts to defense and other programs which they describe as "abrupt" and "mindless" -- and instead enact a $2.4 trillion deficit reduction plan over 10 years.

A quarter would come from changes to health care spending, a quarter would come from closing tax loopholes and the rest would come from spending reductions including a stingier adjustment of Social Security's cost of living increases. 

On tax reform, the plan presents a middle ground -- by using the savings from closing loopholes to both lower rates and bring down the deficit. By contrast, Obama has pushed to use that savings mostly to reduce the deficit, while Republicans have pushed to use it to bring down rates. 

Simpson and Bowles cast their plan as building on the proposal from the president's deficit commission -- a plan which Congress never adopted and Obama never fully endorsed. 

Obama, fresh off a three-day Florida golfing trip, was to press his own case during an event at the White House on Tuesday morning. Emergency responders, a group of workers the White House says could be affected if state and local governments lose federal money as a result of the cuts, were joining him. 

The $85 billion in cuts, known as the sequester, will start taking effect on March 1 unless Congress acts. The White House says the sequester could derail an economy still suffering from high unemployment and sluggish growth.

Obama wants to offset the sequester through a combination of targeted spending cuts and increased tax revenue. The White House is backing a proposal unveiled last week by Senate Democrats that is in line with the president's principles.

But that plan was met with an icy reception by Republicans, who oppose raising more tax revenue in order to offset the cuts. GOP leaders say the president got the tax increases he wanted at the beginning of the year when Congress agreed to raise taxes on family income above $450,000 a year. 

The White House said Obama on Tuesday would call on congressional Republicans to compromise and accept the Senate Democrats' proposal. 

The Democrats propose to generate revenue by plugging some tax loopholes. Those include tax breaks for the oil and natural gas industry and businesses that have sent jobs overseas, and by taxing millionaires at a rate of at least 30 percent. 

A spokesman for House Speaker John Boehner said the Ohio Republican agrees the sequester is a bad way to reduce spending, but put the onus for averting the cuts on Democrats. 

"A solution now requires the Senate -- controlled by the president's party -- to finally pass a plan of their own," spokesman Brendan Buck said. 

Some Republicans, including House Budget Committee Chairman Paul Ryan, R-Wis., have advocated plugging loopholes, but as part of a discussion on a tax overhaul, not sequestration. 

"Loopholes are necessary for tax reform," Ryan said Sunday on ABC's "This Week." `'If you take them for spending, you're blocking tax reform and you're really not getting the deficit under control." 

The sequester was first set to begin taking effect on Jan. 1. But as part of the "fiscal cliff" negotiations, the White House and lawmakers agreed to push it off for two months in order to create space to work on a larger budget deal. 

With little progress on that front in recent weeks, Obama is calling for the sequester to be put off again, though it's unclear whether another delay would have any impact on the prospects for a broader budget agreement. 

The Associated Press contributed to this report.

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