Introducing his proposal to rein in the nation's debt, on Monday President Obama essentially pitched congressional action as a choice: between the "wealthiest Americans and biggest corporations" and the "middle class and the poor." The plan calls for more than $4 trillion in budget savings over the next decade, paying for the president's $447 million American Jobs Act, giving specific recommendations for the $1 trillion in spending cuts already tasked to the bipartisan super committee under the debt-ceiling deal and proposing an additional $3 trillion in savings.
How? Through what the president repeatedly called a "balanced approach" that includes a mix of spending cuts and the elimination of tax breaks for the wealthiest Americans. The strategy is similar to the one he tried to push unsuccessfully this summer during the debt-ceiling debate.
"It was an approach that said we shouldn't balance the budget on the backs of the poor and the middle class; that for us to solve this problem, everybody, including the wealthiest Americans and biggest corporations, have to pay their fair share," the president said. "All told, this plan cuts two dollars in spending for every dollar in new revenues."
On the spending-cuts side, among other trims, the president's detailed proposal (pdf) includes:
* $1.1 trillion from the drawdown of troops in Afghanistan and Iraq
* $320 billion from Medicare and Medicaid, targeting overpayments, erroneous payments and wasteful spending (any cuts affecting beneficiaries would not be phased in until 2017)
* $33 billion from agricultural subsidies and programs, including a direct payment program that often pays large farms for crops that they no longer produce
* $42.5 billion in modifications to federal employee benefits programs
* $77.6 billion from improving the management of federal programs, including IRS tax enforcement and unemployment insurance, to reduce waste and erroneous payments
But the headline aspect of the president's plan is the $1.5 trillion revenue-raising side that called on the super committee to also undertake tax reform — namely, a new tax rule to ensure that people making more than $1 million a year do not pay lower income taxes than middle-class Americans. The policy, called the "Buffett rule" in honor of Warren Buffett's oft-repeated anecdote that he pays a lower tax rate than his secretary, is designed to change the current tax code which has middle-class Americans paying 23 to 33 percent income tax, while the very wealthy can have rates of 15 percent. In his speech, Obama derided this as fundamentally unfair:
It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million. Anybody who says we can't change the tax code to correct that, anyone who has signed some pledge to protect every single tax loophole so long as they live, they should be called out. They should have to defend that unfairness. Explain why somebody who's making $50 million a year in the financial markets should be paying 15 percent on their taxes when a teacher making $50,000 a year is paying a higher rate.
If Congress is unable to reach a tax-reform agreement, then the president promised to let all the 2001 and 2003 tax cuts expire at the end of 2012, and close other special-interest loopholes and tax breaks. And if he is sent any bill that cuts Medicare beneficiaries without raising taxes on the wealthy and large corporations? He promised to veto it.
Obama closed his remarks by responding to Republican rebuttals that his tax proposals are class warfare.
This is not class warfare. It's math. The money is going to have to come from someplace. And if we're not willing to ask those who've done extraordinarily well to help America close the deficit, and we are trying to reach that same target of $4 trillion, then the logic, the math says everybody else has to do a whole lot more. We've got to put the entire burden on the middle class and the poor. We've got to scale back on the investments that have always helped our economy grow. We've got to settle for second-rate roads and second-rate bridges and second-rate airports, and schools that are crumbling. That's unacceptable to me.
The president's debt-reduction strategy is a reversal of his usual approach of crafting watered-down concessions to garner votes from House Republicans. Since that didn't work during the debt-ceiling debate, this time he's striking at their potential liabilities around taxes and Medicare — challenging them either to act or have it used against them in the 2012 election. The president is betting that he'll be able to win that argument.
"He's asking the right questions by looking to tax reform that would get rid of a lot of the special provisions and bring in revenue," Robertson Williams, senior policy fellow at the Tax Policy Center, told The Root. "The problem is that it's not likely for the super committee to find any agreement on this by November. Throwing out a veto is stronger than anything he's done in the past, but it's hard to say what happens politically."
For the time being, Republican leaders are framing the president's tax-reform plan as a job killer that would hurt small-business growth. "That comes down to what constitutes small business, and why they aren't growing and creating jobs," said Williams, pointing out that the president is specifically referring to the top 2 percent of income earners. "We know that corporations as a whole are sitting on about $2 trillion in cash, while interest rates are very, very low. It's hard to imagine that this kind of tax increase is the difference between growing their business or not. These people are not as influenced by the tax code as [Republicans] would have you believe."
President Obama hopes to win this debate, however, by angling the conversation as a moral issue. "It's not about numbers on a ledger; it's not about figures on a spreadsheet," he said on Monday. "It's … about fairness. It's about whether we are, in fact, in this together, and we're looking out for one another. We know what's right; it's time to do what's right."
Cynthia Gordy is The Root's Washington reporter.