Obama aims to lower US deficit by US$4 trillion

  • Business
  • Thursday, 14 Apr 2011

WASHINGTON: President Barack Obama unveiled a politically risky plan to reduce the U.S. deficit by US$4 trillion over 12 years by cutting health care and defense while raising some taxes.

Obama's proposal Wednesday set the stage for the ideological and political fight that is sure to dominate the 2012 presidential and congressional campaign.

Under Obama's plan, three quarters of the deficit reduction would come from spending cuts, including lower interest payments as the debt eases. One quarter, or $1 trillion, would come from additional tax 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," he said in a speech at George Washington University.

Even before Obama's speech announcing his proposal, Republicans argued that it didn't go far enough to reduce a debt that has reached $14 trillion. They also oppose any tax increases.

"If we're going to resolve our differences and do something meaningful, raising taxes will not be part of that," said Republican House Speaker John Boehner.

Obama and the Democrats have similarly rejected a Republican proposal which would reduce spending by $5.8 trillion over the next decade, largely through cuts in health care programs for the elderly and the poor. And it would cut taxes for corporations and the wealthy.

Prospects are dim for the quick passage of either proposal. While the Republicans are likely to win approval for their plan in the House of Representatives, where they have a majority, the Democratic-led Senate would reject it.

For all his tough talk, Obama called for both parties to work with him and strike a deficit cutting compromise. He asked party leaders to name negotiating teams and set a June deadline for an agreement.

Still, both parties are taking big political gambles. Obama needs to keep the support of the liberal Democratic base, which opposes cuts to social programs, while demonstrating to independent, moderate voters - who often determine the outcome of elections - that he is serious about reducing the deficit.

Republicans have made spending cuts a core issue. They won control of the House last year largely on the strength of the ultraconservative tea party movement, which favors a smaller role for government and sharply reduced spending.

But Republicans are walking into a political minefield by proposing an overhaul of Medicare, the health insurance program for the elderly. Millions of beneficiaries living on fixed income depend on the program and fear any changes. Older Americans turn out more for elections than younger ones do.

The U.S. debt has soared over the past decade. During that time, taxes were cut, social programs were added and the U.S. fought costly wars in Iraq and Afghanistan. The global recession hurt revenues and prompted more government spending to stimulate the economy. The aging U.S. population will lead to further strains as more Americans depend on Medicare and Social Security, the government pension program.

The debt has become a big political issue as Americans fear that it will undermine the nation's economy and leave future generations with large bills to pay to China and other creditors.

In his proposal, Obama was partly following the recommendations of a bipartisan deficit-reduction commission he had appointed. That panel had recommended about $4 trillion in savings through cuts and tax increases, including eliminating some popular tax breaks. Lawmakers from both parties were reluctant to embrace its recommendations.

The budget battle is one of three separate spending fights in Washington. Last week, Democrats and Republicans narrowly averted a partial shutdown of the government by agreeing on a spending plan for the rest of the current budget year, which ends Sept. 30. Final approval of that plan is expected this week.

Congress must vote in the coming few weeks for an increase in the federal debt limit, the amount the U.S. government can borrow. Republicans say they want more spending cuts as a condition for raising the debt ceiling. Democrats warn that failure to raise it by midsummer could drive up the cost of borrowing, raise fears of a default and destroy the economic recovery.

Obama's plan comes at a juncture when conservative, anti-tax tea party-backed Republicans are relishing early victories in the House, the 2012 Republican presidential field is just beginning to take shape, and moderate Democratic lawmakers are charting their re-election campaigns in swing seats.

Obama's emphasis on deficit reduction marked an appeal to independents as well as other voters who are eager to stem record annual deficits as well as a national debt that is over $13 trillion.

The president was scheduled to meet Thursday at the White House with the co-chairmen of a bipartisan fiscal commission he appointed - Democrat Erskine Bowles and Republican Alan Simpson - AP

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