Shortly after Congress avoided a mass government shutdown with a deal addressing spending priorities for the remainder of the fiscal year, President Obama announced a plan to cut The United States’ Federal debt by $4 trillion over the next 12 years. After largely staying on the sidelines during the fight over the budget deficit, President Obama addressed his broad framework to reduce the federal budget gap as “a balanced approach”, mixing a combination of reduced spending and increases in taxes, while at the same time protecting the middle class and future investments. Contrary to the proposed budget plan by Paul Ryan, Republican budget committee chairman, President Obama’s plan falls short in debt reduction. Congressman Ryan’s offer promises to cut the government debt by a margin of $4.4 trillion over the next ten years. Which plan is the right approach to fiscal sustainability?
Upon closer consideration, Congressman Ryan’s budget plan, titled Path To Prosperity, is outright bold in its attempt to cut fiscal spending by a stunning $6.4 trillion. Consequently, a tax reform is in order to offset the dramatic decrease in budget spending; however, Mr. Ryan presents no clear outline with exception of a vague promise to lower taxes for families and businesses. It would not be out of the ordinary to see these tax cuts go to the top five percent wealthiest people in the country. Further cuts in national expenses would include reforming costs for national healthcare and severe financial cutbacks on national defense and the military.
The first step in President Obama’s budget plan came into effect when he endorsed the aim of the Simpson-Bowles debt commission that deficit reduction should come via two dollars of spending cuts for every dollar of increased tax. The Simpson-Bowles debt commission is composed of the White House’s fiscal commission’s co-chairs, Erskine Bowles and former Senator Alan Simpson’s work on draft recommendations, specifically on reducing the country’s budget deficit. Other methods discussed in the drafts include cuts in the number of federal workers, increasing the costs of participating in veterans and military health care systems, increasing the age of Social Security eligibility, and major cuts in defense and foreign policy spending.
As The Economist explains, President Obama also proposed the creation of “debt failsafe” triggers, which are also at the center of a plan under consideration by a bipartisan group of senators called the Gang of Six. In the event the public debt is not declining as a share of GDP from 2014 onwards as planned, the triggers would impose across-the-board cuts to spending and increases in taxes via the closing of loopholes. However, Social Security, Medicare, and low-income programs, such as Medicaid and food stamps, would be spared.
It is possible that the President’s budget plan is less of a blueprint of how to save America from fiscal ruin than a means to establish a stronger negotiation position. Ideas and policies are beginning to take shape and negotiated. One week ago a critical issue was the aim of the Simpson Bowles debt commission. Now President Obama is endorsing it with the hopes that further negotiations continue in a more fair and centered manner among the parties. The United States cannot afford to let its budget drop to the floor due to a divided Congress.
