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Obama seeks $4 trillion cut to deficit, higher taxes for rich

Backs benefit programs, draws battle lines with GOP

President Obama, in his speech yesterday, promised to preserve Medicaid and Medicare. President Obama, in his speech yesterday, promised to preserve Medicaid and Medicare. (Charles Dharapak/ Associated Press)
By Donovan Slack and Mark Arsenault
Globe Staff / April 14, 2011

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WASHINGTON — President Obama pledged yesterday to pare the projected deficit by $4 trillion in the next 12 years, vowing to protect the nation’s most vulnerable while pushing again for higher taxes for its richest citizens.

In a 43-minute speech that mixed appeals for a united sense of purpose with sharply partisan jabs, the president laid out his vision of a country strengthened both by fewer debts and a greater diligence to solving the problems of Medicaid and Medicare. In promising to preserve those programs, he enlists his administration in the beginning of what is expected to be an epic battle with Republicans over their fate.

“We are a better country because of these commitments,’’ he said in an impassioned defense of Medicaid and Medicare against Republicans’ push for sweeping changes. “I’ll go further — we would not be a great country without those commitments.’’

Obama also sought cuts in defense spending and renewed his pitch for a simpler tax code. His call for the end of the Bush tax cuts for incomes above $250,000 for couples reignites a ferocious debate from the fall midterm elections.

That element of the speech triggered the most vociferous and immediate opposition from Republicans. “Any plan that starts with job-destroying tax hikes is a nonstarter,’’ House Speaker John Boehner, Republican of Ohio, said in a statement.

The Medicaid and Medicare over haul is key to the Republicans’ plan, which aims for deeper cuts to the deficit over a shorter time.

Their plan, put forth by US Representative Paul Ryan of Wisconsin last week, would transfer much of the responsibility for those programs from the federal government to state government, individuals, and insurers.

As part of an overall bid to cut almost $6 trillion in spending over 10 years, Ryan’s proposal would convert Medicaid, the health program for the poor, into a block grant paid to state governments, and in 10 years replace Medicare, the health care program for seniors, with a system to provide money to seniors to buy private insurance.

Because the GOP plan also seeks various tax cuts along with the spending plan, about $4.4 trillion would be cut from the projected deficit. The nation’s current debt is $14 trillion. Neither Republicans’ nor Obama’s plans would decrease the overall debt. Both instead address the annual spending deficit so the overall debt wouldn’t grow as quickly.

The president had asked Ryan to attend the speech at George Washington University. But at the end of the address, the chairman of the House Budget Committee left frustrated by the details of Obama’s plan and the tone of his words.

“When the president reached out to ask us to attend his speech, we were expecting an olive branch,’’ Ryan said in a statement. “Instead, his speech was excessively partisan, dramatically inaccurate, and hopelessly inadequate to address our fiscal crisis.’’

The comments reflect the chasm between the positions of the Republicans and Obama, even though the president acknowledged the need to tackle the deficit and the problems of soaring medical inflation now rather than waiting for the economy to completely recover.

The battle over long-term spending cuts and entitlements has already begun in the House, which is scheduled to debate the Republican plan this week.

The president has called for bipartisan talks, led by Vice President Joe Biden, to bridge the differences. But the questions over the scope and responsibilities of the federal government probably won’t be completely answered in any deal. Instead, they are expected to resound throughout Obama’s bid for reelection next year.

The president is likely to repeat his broad contention that he stands with middle-class Americans and believes the wealthy need to bear more of the burden of caring for the elderly and less fortunate, stances he says are reflected in his deficit plan. His Republican challengers are expected to stick by their mantra of lowering taxes, shrinking government, and giving individuals and state and local governments more power to make their own determinations.

The arguments also echo campaign themes of last year, when Democrats suffered a resounding defeat in midterm elections. Only after losing the House to Republicans did the president back away from his vow to limit the tax breaks from President George W. Bush’s tenure for the richest 2 percent of Americans.

While vowing to make Medicaid and Medicare stronger, Obama acknowledges some changes are needed. He also says those programs will yield cost savings beyond those detailed in his signature health care overhaul.

More specifically, his plan calls for saving $480 billion in entitlement expenses through several measures, partly by expanding the authority of an independent board to set reimbursement rates and policies if Congress does not set them. He also would institute an incentive program for states that improve the efficiency of their Medicaid programs, replace a patchwork of state reimbursement formulas with a single formula for Medicaid and children’s health programs, and seek to lower drug prices by expanding the market for generic drugs and leveraging the purchasing power of Medicare.

The stakes in the fight are profound. Last year, Medicare had 46.6 million beneficiaries, including 1.05 million in Massachusetts, according to data compiled by the Kaiser Family Foundation. The total cost: $509 billion.

About 157,900 seniors in Massachusetts rely on Medicaid to pay for services Medicare does not cover, such as long-term care, according to Families USA, a Washington, D.C.-based advocacy group. There are 452,600 low-income children in the state who depend on Medicaid for health care.

Obama’s plan is far more cautious than the GOP’s much bolder “dive from the high board,’’ said Ross Baker, a Rutgers University political scientist. In casting himself as the defender of the health care programs that millions of Americans depend on, Obama can paint the Ryan plan as “a wrecking ball against the main entitlements and an attack on the working poor,’’ Baker said.

“From a purely political point of view, the president has put out a proposal that’s largely bulletproof, while the Ryan plan has a target painted on it,’’ he said.

Some analysts, however, took the president to task for skirting the debt issue. The GOP’s focus on debt and the party’s sweeping victories in the November midterm elections should have forced Obama’s hand, said Dennis Hale, a Boston College political science professor.

“This is like a drunk who comes home and finds all of his family and friends there for an intervention,’’ he said. “If you don’t have the money to pay for that stuff, you just can’t have that stuff. The math doesn’t work.’’

The president, following Ryan’s lead, does not offer detailed changes to Social Security, instead calling for a conversation on ways to bolster it in the long term. That entitlement program for retirees is funded separately and considered more financially robust than Medicare or Medicaid. Analysts, however, say some adjustments will be needed to ensure that the large number of baby boomers entering retirement receive the benefits they expect.

Representative Richard Neal, a Springfield Democrat on the Ways and Means Committee, said the battle over entitlements, tax reform, and controlling spending may not be resolved for months, “if not a couple of years.’’

“I don’t think you’re going to see tax reform without the presidential candidates taking it up,’’ he said, adding, “I think you can see the parameters of what an agreement is going to look like.’’

Members of the all-Democratic Massachusetts House delegation generally supported the president.

Representative Barney Frank said he was “pleasantly surprised’’ that Obama suggested deeper cuts in defense spending and resisted conservatives’ calls to scale back Medicare and Medicaid benefits. Frank last year joined conservative Representative Ron Paul of Texas in a proposal that calls for deep cuts in defense spending.

Senator Scott Brown, the only Republican member of the Bay State delegation, said higher taxes would “kill jobs and make our economy worse, not better.’’

“I’m glad that President Obama is getting more serious about deficit reduction, but I do not think it should be addressed by raising taxes,’’ Brown said.

Donovan Slack can be reached at dslack@globe.com. Follow her on Twitter @DonovanSlack. Mark Arsenault can be reached at marsenault@globe.com.