President Obama dipped his toes in the national debt debate yesterday, proposing a plan to trim the deficit by $4 trillion over the next 12 years.
Unlike Paul Ryan’s dramatic budget plan, the president’s plan stops short of tackling any sacred cows. Perhaps predictably, Obama offers no radical restructuring of entitlements or major cuts to the social safety net.
Instead, Obama calls for spending cuts — including deeper reductions in defence costs — combined with higher taxes on the rich.
Obama's deficit plan calls on Congress to end Bush tax cuts for the top income bracket. The President would also lower the corporate tax rate without adding to the deficit by eliminating loopholes.
Ryan equivalent: Ryan's plan would lower the top individual and corporate tax rates to 25%. Combined with Ryan's spending cuts, the tax decrease would be revenue-neutral.
Obama's plan sets a target of holding Medicare cost growth per beneficiary to GDP per capita plus 0.5 per cent starting in 2018.
Ryan equivalent: Privatizing Medicare, which Republicans say would save $389 billion over 10 years.
Starting in 2013, the President wants to follow the National Fiscal Commission's recommendations to cap non-security discretionary spending at 2008 levels through 2020 but he also called for continued investment in 'key drivers' like energy, education and infrastructure.
Ryan equivalent: Ryan would freeze discretionary spending below 2008 levels to bring total spending down to 20% of GDP. He estimates this will save $1.6 trillion over 10 years.
Obama's plan sets the goal of reducing base security spending below inflation, doubling defence Secretary Robert Gates' recommendations to cut security spending by reducing waste and efficiency. He notes that this is in addition to any savings from pulling out of Iraq and Afghanistan.
Ryan equivalent: Ryan says he would follow most of Gates' recommended cuts but wants to put the bulk of the savings back into other military projects.
The president's deficit reduction plan would build on his budget proposals to reform agricultural subsidies, shore up the federal pension insurance system and the unemployment trust fund and enact anti-fraud measures.
Ryan equivalent: The Republicans target other federal agencies and programs for cuts, including Fannie Mae and Freddie Mac, job training programs and energy subsidies. They would also defund the Dodd-Frank financial reform bill.
The president's Medicare reform plan would limit excessive payments for prescription drugs by speeding up the availability of generics, preventing companies from entering 'pay for delay' agreements with generic companies and improving management for high users of prescription drugs.
Ryan equivalent: None.
The President's plan would replace federal Medicaid matching formulas with one matching rate that would reward states for efficiency. The rate would increase with enrollment and costs. Obama also called for the National Governor's Association to make Medicaid reform recommendations.
Ryan equivalent: Replacing federal matching with block grants to save $750 billion over 10 years.
The Obama administration estimates it will cut Medicare costs through Partnership for Patients, a public-private safety initiative that aims to prevent complications and stop patients from getting injured or sicker while they are in the hospital.
Ryan equivalent: Repealing Obamacare, which Republicans say will save $725 billion over 10 years.
Just to show he's serious about cutting the deficit, Obama's plan includes a 'Debt Failsafe' that would trigger additional spending cuts if the debt-to-GDP ratio hasn't stabilised and shown a decline by 2014. The trigger would not apply to Social Security, low-income programs or Medicare.
Ryan equivalent: Capping government spending at 20% of GDP by 2018 to reduce the deficit by $4.4 trillion over 10 years. Under Ryan's proposal, the OMB would have to cut spending for entitlement programs that are growing too fast. Tax increases would require a three-fifths majority in Congress.
The White House deficit reduction plan emphasises that Obama does not think Social Security is in crisis or is a driver of near-term deficit problems. The president does 'support bipartisan efforts' to restore solvency without privatization.
Ryan equivalent: Ryan also punts the Social Security question. He suggests privatizing the program for workers currently under 55, but doesn't say how this would affect the deficit.
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