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Obama urges tax hike, talks of veto

Offers $3 trillion plan to reduce the deficit

By Donovan Slack and Theo Emery
Globe Staff / September 20, 2011

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WASHINGTON - President Obama called for a variety of tax increases on the richest Americans yesterday, making it a key element of his $3 trillion deficit-reduction plan as he stepped back from recent consideration of significant cuts to Social Security and Medicare.

In an impassioned address that called for mutual sacrifice in these hard times, Obama vowed to veto any bill that cuts big-ticket entitlement programs without including tax increases.

“That’s unacceptable to me. That’s unacceptable to the American people. And it will not happen on my watch,’’ he said.

Deficit plan would spread health program cuts. A7

The plan and strong rhetoric rekindle the president’s battle with congressional Republicans. Responding to GOP accusations that his plan would divide Americans, Obama said: “It’s not class warfare. It’s math.

“If we’re not willing to ask those who’ve done extraordinarily well to help America close the deficit, the math says everybody else has to do a whole lot more,’’ he said.

The proposal marked a shift for Obama, who had appeared to be more willing to meet Republican demands for cuts in Social Security or Medicare when the nation’s ability to borrow money was imperiled this summer. Such an accommodating stance angered some of his most ardent supporters.

In those talks with House Speaker John A. Boehner, the president had agreed to increase the eligibility age for Medicare from 65 to 67 and change calculations that would limit Social Security cost-of-living increases. Those concessions were part of a grand bargain for $4 trillion in deficit cuts the president unsuccessfully tried to strike with House Republicans.

It appears that such a bargain is off, at least for now - and if cuts in entitlement programs are to be made, they must come with higher taxes on those most able to pay.

Boehner said the president’s new plan did not constitute “a serious contribution’’ to tackling the nation’s debt and instead spotlighted the barriers to any compromise.

Liberal groups heartily endorsed the plan. “Americans need jobs, not cuts, paid for by making millionaires and corporations pay their fair share,’’ said Daniel Mintz, campaign director at MoveOn.org.’’

The president submitted his plan yesterday to a congressional committee working to identify $1.5 trillion in deficit cuts mandated by last month’s debt-ceiling agreement, which also called for about $900 million in more immediate cuts.

Obama’s plan details spending cuts and revenue increases over the next decade to fulfill the debt panel’s obligation while also covering the $447 billion jobs bill he introduced last week.

The deficit-cutting proposal appears to have little chance of being adopted by the bipartisan committee. Boehner, in a speech last week, had warned the committee not to consider tax increases. Yesterday, Senate Republican Leader Mitch McConnell issued a scathing statement.

“Veto threats, a massive tax hike, phantom savings, and punting on entitlement reform is not a recipe for economic or job growth - or even meaningful deficit reduction,’’ he said.

Several of the president’s proposals for revenue increases have been pitched before, including allowing the Bush-era tax cuts to lapse for the richest 2 percent of Americans and ending subsidies for agricultural and oil and gas industries. Among the proposals is a limit on tax deductions for those wealthiest Americans.

The president’s call for more tax fairness and his shift away from significant entitlement cuts are expected to strengthen his base as he gears up for his reelection bid next year. By vowing to protect the major programs, he also is making a pitch to some moderates who have become wary of GOP attacks on Social Security and pledges to overhaul Medicare, both in Congress and on the campaign stump.

The president is at a critical juncture, political analysts said. With support sagging from party loyalists, his poll numbers at record lows, and the 2012 election season beginning in earnest, the president wants to show strong leadership that will reverberate throughout his party, said James M. Glaser, a dean and professor of political science at Tufts University.

“So coming out and shaking his fist at the other side a little bit - that’s not a bad thing for him to be doing right now,’’ Glaser said.

Paul Watanabe, an associate professor in the University of Massachusetts-Boston’s department of political science, said that the president has been perceived as coddling Congress, and he’s now taking a more confrontational stance toward Capitol Hill, much as President Harry Truman did in 1948.

“That’s very much a part of Obama’s playbook - whether consciously or not, there are echoes of that,’’ he said.

Overall, the president’s Budget Control Act would cut the deficit by $3 trillion over the next decade, taking into account savings of $1.1 trillion from troop draw-downs in Iraq and Afghanistan. Some $1.5 trillion would come from new tax revenues and $580 billion would come from spending cuts in Medicare and elsewhere.

Senator John Kerry of Massachusetts, a member of the deficit reduction committee who typically offers resounding support for Obama’s proposals, was more measured yesterday.

“The dialogue is always stronger when thoughtful, serious ideas are on the table, and the president’s proposal underscores that a balanced approach includes revenues,’’ he said.

Edward J. Markey, a Malden Democrat, rebutted the notion that Obama is waging class warfare by pitting the wealthy against the poor.

“The only warfare being waged is by Republicans on America’s seniors and middle-class families when they insist on reducing our deficit solely through short-sighted cuts,’’ said Markey, who last week distributed a report on how the stumbling Massachusetts economy could be battered by additional cuts to federal programs.

Among the plan’s cuts are several that would hit the Bay State’s life sciences, hospitals, and biotech industries, including lowering Medicare reimbursements to teaching hospitals. It also seeks new copayments for new Medicare home health care patients, starting in 2017.

That element drew opposition from some members of the delegation.

“There are smart ways to control health care costs. Taxing sick and frail seniors is not one of them,’’ said Representative James P. McGovern, a Worcester Democrat.

Representative Michael E. Capuano said he wants more details. “At least he’s talking about doing things in a balanced way now,’’ the Somerville Democrat said, a reference to increasing revenues.

Senator Scott P. Brown, the delegation’s sole Republican, said it’s a mistake for the president to try to raise taxes. Rather, new revenues should be addressed by a comprehensive tax overhaul, he said.

“In 2009, President Obama said it was wrong to raise taxes during a recession. It would be just as wrong to raise taxes now with the country teetering on the edge of a double-dip recession,’’ Brown said.

Donovan Slack can be reached at dslack@globe.com. Theo Emery can be reached at temery@globe.com. Follow them on Twitter @donovanslack and @temery.

Chipping away at shortfall

President Obama’s plan for deficit reduction includes more than $1.5 trillion in revenue increases, about $1.1 trillion in savings from troop drawdowns, and $580 billion in spending cuts over 10 years.

Its revenue-gaining provisions would:

■Allow tax cuts for wealthiest Americans and on the estate tax to expire at the end of 2012: $866 billion

■Limit tax deductions for couples earning more than $250,000 or individuals earning more than $200,000: $410.1 billion

■Change allowable accounting methods for business taxes: $60 billion

■Eliminate subsidies for coal, oil and gas industries: $43.8 billion

■Reduce agriculture subsidies: $31.1 billion

■Increase airline passenger security fees and institute new air traffic fee: $25.9 billion

■Increase pharmacy copayments and initiate annual premiums for health insurance for military retirees and their families: $21.8 billion

■Increase civilian federal employee retirement contributions: $20.1 billion

■Introduce home health copayments for new Medicare beneficiaries, starting in 2017: $400 million

■Require prior Medicare authorization for advanced imaging: $900 million

■Reduce the exclusivity period for brand-name biotech drugs: $3.5 billion

■Tax profits from investment partnerships as regular income, rather than as carried interest at 15 percent: $12.5 billion

■Change tax rules for life insurance companies: $12 billion

■Reduce flood insurance premium subsidies for some properties: $4.2 billion

■Renew domestic nuclear facilities fee, enact pesticide registration and premanufacture fees: $3 billion

SOURCE: White House Office of Management and Budget