A Summary of Barack Obama's Deficit Reduction Plan

The framework for deficit reduction President Obama will lay out Wednesday is a mixed bag for members of his party. It borrows heavily in some areas from the conservative-leaning Bowles-Simpson recommendation, but commits elsewhere to enhancing the cost-cutting programs in the health care law and rejects Republican proposals to privatize entitlements, or maintain or reduce the tax burden on the upper class.

His Republican critics have made clear that the vast majority of Obama's ideas are non-starters. They reject all calls for tax increases and remain committed to repealing — not strengthening — the Affordable Care Act.

In his speech, he'll return the favor by drawing very sharp contrasts between his approach to reforming health entitlements and the GOP's which includes privatizing and unwinding Medicare and dramatically slashing Medicaid.

But progressives and liberal Democrats will blanch at many of Obama's other ideas. For instance, he will call for setting an arbitrary three-to-one ratio to govern how much deficit reduction should come from spending cuts vs. tax increases, and back the Bowles-Simpson cap on non-defense discretionary spending.

He also will endorse separate efforts to eliminate Social Security's long-term budget shortfall that leaves the door open to benefit cuts for future beneficiaries.

Here are the highlights. Taken together, the White House claims the program will reduce the deficit by $4 trillion over 12 years.

  • A debt failsafe that will be triggered if the debt-to-GDP ratio hasn't stabilized, and begun to decline by mid-decade. This will include automatic spending cuts, and reductions in tax subsidies, but no tax increases. Social Security, Medicare, and low-income programs will be exempted. It will not tie the government's hands in the event that an economic downturn requires fiscal stimulus.
  • Cuts to discretionary spending, compatible with those in the Bowles-Simpson recommendations.
  • Defense spending cuts, contingent on a thorough review conducted by Secretary Robert Gates, the Joint Chiefs of Staff, and Obama himself, and savings generated by winding down operations in Iraq and Afghanistan. Strengthening the Independent Payment Advisory Board, created by the health care law to recommend and implement cost savings reforms to hold down the cost-per-Medicare-patient.
  • Simplifying the formula for providing federal matching funds to states for Medicaid, which would automatically increase in the event of a recession.
  • This is a big one — Obama will propose using Medicare's purchasing power to reduce prescription drug costs for seniors.
  • Reductions in agricultural subsidies.
  • Comprehensive tax reform, which reduces loopholes, simplifies the system, allows the Bush tax cuts for high-income earners to expire, and reduces the corporate tax rate.

This is a decidedly centrist approach — and one that's hard to reconcile with the House Republican budget.


A Summary of Barack Obama's Deficit Reduction Plan Republished with permission from TalkingPointsMemo.com. Authored by Brian Beutler. Photo via AP. TPM provides breaking news, investigative reporting and smart analysis of politics.