Obama’s 2011 Deficit Reduction Plan – Reducing the National Debt By Cutting Medicare, Defense Spending and Raising Taxes

Following on the heels of the protracted budget extension debate and as a precursor to the fight for raising the $14.3 trillion national debt ceiling, President Obama has revealed his high level plan to tackle America’s growing  national debt challenge. His debt plan is also a response to the Republican’s 2012 budget plans (announced by Paul Ryan, R-Wisconsin), that would overhaul the Medicare and Medicaid government health care programs for the elderly while reforming the tax code to lower rates and eliminate loopholes.

Obama’s 2011 Deficit Reduction plan is based on 4 key items aimed at reducing the deficits by $4 trillion over 12 years (vs Republican proposed cuts of $5.8 trillion over 10 years), with $3 trillion coming from spending reductions and $1 trillion from tax reform. In particular:

– Cut domestic discretionary spending by reducing spending on various federally funded programs.

  • Reduce the defense budget by $400 billion through eliminating obsolete programs (like a number of fighter jet development programs)

– Tax Cuts: Administration officials confirmed that the president will renew his call to end the Bush-era tax cuts for families making over $250,000 a year, a proposal that Republicans fiercely opposed. “The most fortunate among us can afford to pay a little more. I [and Warren Buffet] don’t need another tax cut [at the expense of medicare for seniors]” Obama said during his press conference. He also pushed for corporate tax reform by proposing to cut the corporate tax rate, while eliminating other loopholes.

– Medicare: Control entitlement spending on such programs as Medicare and Medicaid that provide health care for 30% of Americans. Obama is aiming to cut more than $300 billion in savings from Medicare and Medicaid programs over the next decade. Unlike the Republicans proposal which makes much larger cuts – $771 billion from Medicaid over 10 years – Obama does not want to push seniors to purchase government-subsidized insurance.

The President positioned his debt reduction plan as a more “compassionate” alternative to one introduced last week by Ryan. He applauded Republicans for putting a plan on the table to address entitlements, but the praise stopped there.

“The way this plan achieves those goals would lead to a fundamentally different America than the one we’ve known certainly in my lifetime,” Obama said, calling the GOP plan “deeply pessimistic.” He suggested Republicans were giving up on basic functions of government.

“It’s a vision that says if our roads crumble and our bridges collapse, we can’t afford to fix them. If there are bright young Americans who have the drive and the will but not the money to go to college, we can’t afford to send them,” Obama said of the Republican plan. “It’s a vision that says America can’t afford to keep the promise we’ve made to care for our seniors.” (source: foxnews)

Obama’s deficit reduction proposal also calls for a “failsafe” trigger, which would apply across-the-board spending cuts if the national debt, as a percentage of GDP, is not on the decline by 2014. This would force Congress to act.

The President has appointed vice-president Joe Biden to lead a congressional effort to put together a bi-partisian plan to tackle the national debt. He wants to see concrete proposals by the end of June. I will provide more updates on these specifics and you can subscribe (free) via Email or RSS to get notified of the latest news.

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5 thoughts on “Obama’s 2011 Deficit Reduction Plan – Reducing the National Debt By Cutting Medicare, Defense Spending and Raising Taxes”

  1. Not a forceful enough speech. Nevertheless, we’ll see whether Obama will be able to stand up to the Republican and Tea party bullies even in the moderate stand he took today. We’ll see. We are getting used to the President saying he would do certain things–that he would hold firm–only to cave at the first encounter with his Republican and Tea Party protagonists. Republicans always shout that a number of things are “off the table” in negotiations with Democrats—e.g., no cut in military spending, no increase in tax for the rich, etc. They also frame the issues early and propagandize those issues continuously until they become the conventional wisdom–e.g., “we don’t have a revenue problem; we have a spending problem.” Who said so? Republicans. Is it true? No! Otherwise we would have a surplus already. But no Democrat, not even the President is countering this like of thinking that is propaganda pure and simple. Republicans say certain things are a “non-starter.” What are Obama’s “non-starters?” What does he really believe in? Now he has given himself a wriggle room by stating in his speech that “of course” some of the things he said today would not be upheld in any final deal. Republicans and Teabaggers don’t (never) talk like that. They mean what they say, and they fight to the finish. He has this bad bargaining habit of conceding things even before his opponents have made their demands. In the end, he gives more than his adversaries asked for. This is the sign of a weak and timid President. Dr. Sam

  2. Perhaps THE most embarrassing speech ever, by a President during a crisis period when the nation looks for leadership to help address and solve the economic question of our times. Instead, the nation was treated to hyper-partisan ideologoical campaign rant that was nothing much more than extreme demoguery and listing of the extreme left’s vision for America: higher taxes, smaller defense, penalizing the successful and producers, transfering wealth from working Americans to those who prefer to sit back and let the govt take care of them, at taxpayer expense.

    If anyone needed convincing this President is not serious about addressing our debt, surely no one is in the dark after this. This puppet empty suit may have energised his base, which represents 20% of the contry and George SOros, but theother 80% can only look on in horror.

  3. @Ravi – I agree, the largest pieces of the pie need to be cut.

    I was impressed with the delivery today from the President. I like the way he rebuked the proposed republican budget plan by saying he would not let the richest 1% get a tax cut. I hope he is not in campaign mode already?

  4. Being a federal contractor even I would like to see tax rates go up and our debt tackled. I’m a hard republican (I believe in the free market ideology and not what our government has been doing all along) and I believe that we should cut spending from the largest pieces of the pie.

    -Ravi Gupta

  5. Republicans have already called tax hikes a “non-starter.” So like of all Obama’s plans we will spend years debating this in Congress until the next President in 2012 comes into power. Just keeps more federal workers employed.


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