The next budget battle: what will Obama propose? **UPDATE: Plouffe in the crosshairs

As the White House gears up for the next big battles with the Republican-controlled House of Representatives — over raising the debt ceiling and passing a 2012 budget — President Obama will give a speech on Wednesday stating where he stands on spending, budget cuts, and entitlements.

White House strategist David Plouffe threw cold water all over the Paul Ryan plan on Sunday, saying it would never become law. And he hinted at what the president would propose.

From the Wall Street Journal:

In a speech Wednesday, Mr. Obama will propose cuts to entitlement programs, including Medicare and Medicaid, and changes to Social Security, a discussion he has largely left to Democrats and Republicans in Congress. He also will call for tax increases for people making over $250,000 a year, a proposal contained in his 2012 budget, and changing parts of the tax code he thinks benefit the wealthy.

“Every corner of the federal government has to be looked at here,” David Plouffe, a senior White House adviser, said Sunday in one of multiple television appearances. “Revenues are going to have to be part of this,” he said, referring to tax increases.

The Journal’s reportage aside, there has been no indication that Obama would be willing to actually cut Medicare, Medicaid or Social Security, and in fact, the White House has previously indicated the opposite. Certainly, Obama will specify on Wednesday that privatizing those programs — as Ryan wants to do — is a non-starter, as Plouffe made clear on Sunday.

NBC News reported Monday morning that while Democrats have complained that Obama has been on the sidelines in the budget fight this year, Obama and his aides have been working on their plan for some time. The WSJ reported that the Plouffe announcement “caught Democrats by surprise.”

While the details of what the president will say on Wednesday are not known, one thing is: Obama will call for the Bush tax cuts for the wealthy to be repealed. Why would that be a good idea? From the economist Nancy Folbre, a chart, and an explanation.

First the chart:

And then the explanation:

Consider, for instance, the Fairness in Taxation Act introduced by Representative Jan Schakowsky, Democrat of Illinois, which would increase the top federal marginal income tax rate to 45 percent for married couples earning more than one million dollars a year and to 49 percent for billionaires, from the current rate of 35 percent.

Historically unprecedented? Hardly. The top marginal tax rate was 50 percent in the mid-1980s and even higher in the 1950s (as the chart shows).

Such a boost could raise an estimated $78 billion, more than the current Republican budget-cut goal. Even if it fell far short it would avert proposed cuts for many valuable programs, including Head Start, which provides early childhood education, and Pell Grants, which help low-income families send their children to college.

Some outspoken millionaires, including the billionaire Warren Buffett, have long advocated increased taxes on the rich.

Plenty of ordinary Americans favor this policy as well. An NBC News/Wall Street Journal poll conducted in February offered 26 different ways of reducing the federal budget deficit. The most popular option, considered acceptable by 81 percent of respondents, would place a surtax on federal income taxes for those who make more than $1million a year.

As Robert Kuttner points out, even the “national town meeting” sponsored last June by the Peterson Foundation, a strong advocate of cuts to entitlement spending, reported that 58 percent of participants favored a new, higher tax bracket for millionaires.

And as Folbre points out (and the chart shows) it’s clear that economic prosperity in the U.S. has been highest during the times when the marginal tax rate on the wealthy was the highest — the long boom between World War II and the 1980s, when the top rate was brought down. And economic prosperity ballooned again after Bill Clinton signed a tax increase in 1993 — the longest sustained economic expansion since World War II. Folbre summarizes it this way:

The historical record does not support the claim that high marginal tax rates dampen the economy. Average annual rates of growth in gross domestic product in the high-tax era between 1950 and 1980 exceeded those of the last 30 years. Increases in the top tax rate under President Clinton were followed by robust economic expansion.

In other words, raising taxes on millionaires and billionaires is both good policy and good politics.

Back to what Obama will say on Wednesday, the New York Times offers this preview, and a contrast with the GOP:

The Republican plan includes a shrinking of Medicare and Medicaid and trillions of dollars in tax cuts, while sparing defense spending. Mr. Obama, by contrast, envisions a more comprehensive plan that would include tax increases for the richest taxpayers, cuts to military spending, savings in Medicare and Medicaid, and unspecified changes to Social Security.

In his remarks, which come after Friday’s bipartisan deal to cut domestic spending by about $38 billion for the remainder of this budget year, Mr. Obama will not offer details but will set deficit-cutting goals, White House officials said. The numbers were still under discussion on Sunday.

“He’ll lay out his approach this week in terms of the scale of debt reduction he thinks the country needs so we can grow economically and win the future — a balanced approach,” David Plouffe, the senior White House political strategist, said on “Fox News Sunday,” one of four talk shows on which he appeared Sunday.

“Obviously, we need to look at all corners of government,” Mr. Plouffe said, adding, “We’re going to have a big debate.”

Any lack of specifics will likely draw criticism from both the right and the left. Democrats have failed, not for years, but for decades, to advance a coherent argument FOR tax increases, and therefore have spent a generation fighting to prevent Republicans from cutting vital programs. Obama has remained on defense in that regard, though after the tax compromise in December, he signaled that he intended to return to the subject of the Bush tax cuts for the rich. And some Democrats, like Schakowsky, are preparing actual legislation designed to put the party back on offense on taxes (something the general timidity of the Senate will surely water down.)

Ezra Klein prepares for Armageddon:

On Friday, Congresswoman Michelle Bachmann tweeted, “I am ready for a big fight that will change the arc of history. The current fight in Washington is not that fight.” The debt ceiling is that fight. Boehner’s first political act after cutting Friday’s deal was to take to the pages of USA Today to tout Paul Ryan’s work and warn that the debt ceiling will not be lifted in the absence of “spending cuts and budget reforms.” Sen. Kay Bailey Hutchison went on CNN and told Anderson Cooper that the debt ceiling fight would be “armageddon.”

President Obama, meanwhile, intends to join the budget battle on Wednesday when he gives a speech laying out his approach to long-term deficit reduction. The problem for Obama and the Democrats is that it’s hard to fight unrealistic policy with realistic policy. If you get under the hood of Ryan’s budget, the numbers simply don’t work. The caps he’s placing on Medicare and Medicaid are vastly tighter than the ones he used in the Roadmap or Ryan-Rivlin — or any caps that have ever been used before — and they have no chance of holding.

A deficit-reduction strategy based on implementing and strengtheningthe Affordable Care Act and letting the Bush tax cuts expire is far more realistic, but not likely to get anyone fired up. People are tired of hearing about health-care reform, and they don’t want to enter that debate again. Which leaves Obama is a peculiar position: He either has to make up new deficit-reduction proposals that he can layer atop the policies he’s been advocating for some time, or he has to find a new way to sell old policies. Neither strategy is likely to get the sort of admiring media that Ryan’s poorly understood, but superficially sweeping, vision did, but both are likely to be more realistic paths forward on deficit reduction. A realistic path forward on deficit reduction, however, may not be enough to avert “armageddon.”

And while Klein and others on the left (including Robert Reich, who once championed free trade in the form of NAFTA, but who has remade himself into a champion of the working man…) think Obama already lost round one of the budget battle (a very smart opposing take on that can be found here)… it seems to me that the public will likely perceive the president to be the winner of last week’s melee. Obama had been saying the government must not shut down, and that that parties should compromise. The parties did and the government didn’t. And Republicans chose to fight the endgame over abortion, putting their own extremism on display. In the end, Boehner got beaten up by the tea partiers, who contrary to what Klein posts, wanted $100 billion in cuts this year, not $30, and he demonstrated that his position vis a vis his caucus is that of a beggar, not a leader.

Anyhow, on to round two, the debt ceiling. And yes, it will be Armageddon.

UPDATE: Greg Sargent gets at Plouffe and the White House for alleged middling on Medicare and Social Security, saying Plouffe “…came really close to endorsing the basic concept underlying Ryan’s plan” when he said:

Well, in terms of specifics, let me say this, he has said–he said this in the State of the Union, even though his healthcare reform plan which, by the way, many Congressional Republicans want to repeal, so they’ll have to explain how they’re going to make up the trillion dollars in deficit reduction. So we’ve had a lot of savings in health care, we have to do more. So you’re going to have to look at Medicare and Medicaid and see what kind of savings you can get. First, squeezing them out of the system before you squeeze seniors. Secondly, on Social Security, what he said is that is not a driver right now of significant costs, but in the process of sitting down and talking about our spending and our programs, if there can be a discussion about how to strengthen Social Security in the future, he’s eager to have that discussion.

I’m not sure that’s much of a cave, but here is Sargent’s argument, which rehashes the fundamental liberal critique of the president:

Plouffe, to his credit, pushed back on David Gregory’s mindless repetition of the false Beltway trope that Social Security is a big contributor to the deficits and reminded him that repealing the ACA would increase the deficit. But his remarks nevertheless disturbed what was an otherwise unified Democratic front, by lending legitimacy to the idea underlying Ryan’s plan — that cutting entitlements is crucial to reining in the deficit.

It’s possible that the president will outline a much more progressive vision for deficit reduction in his forthcoming speech. But the President has displayed a maddening ideological tendency to locate himself between two perceived extremes, regardless of the merits of one position or the other. So because Republicans want to destroy the social safety net so they can cut taxes on top earners, and Democrats have vowed to stop them, the White House has, rather predictably, placed itself in the middle.

Obviously, Democrats and liberals want the president to draw a harder line. But to be fair, no one has seen his proposal, or his speech. Let’s see what’s in it before we start clobbering them, maybe? Wait, what am I saying. He’s gonna get clobbered regardless.

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One Response to The next budget battle: what will Obama propose? **UPDATE: Plouffe in the crosshairs

  1. IL JimP says:

    Exactly, let’s actually wait to see what he proposes before we all have a hissy fit.

    He’s always said he doesn’t want cuts but he does want to make all three programs stronger, let’s see what his plans are then make a decision.

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