(Bloomberg) House Republicans, rejecting President Barack Obama’s demand for higher tax rates, countered with a $2.2 trillion deficit-cutting plan that would trim Medicare and Social Security and cap tax deductions for top earners.
John Boehner
The proposal, in a letter Monday to Obama from House Speaker John Boehner and other Republican leaders, seeks $800 billion in tax revenue in the next decade and would slow the growth in Social Security cost-of-living payments. It would reduce entitlement program costs by at least $900 billion, including raising the Medicare eligibility age, and cut $300 billion in discretionary spending.
The proposal “does not meet the test of balance,” White House Communications Director Dan Pfeiffer said in a statement. “In fact, it actually promises to lower rates for the wealthy and sticks the middle class with the bill.” He said the plan included “nothing new.”
Obama and congressional leaders are trying to avert more than $600 billion in tax increases and automatic spending cuts starting in January. The talks reached a stalemate late last week when Republicans rejected Obama’s proposal to raise $1.6 trillion in taxes, including by raising tax rates on the top 2 percent of earners.
Monday’s offer is “absolutely movement,” said Joe Minarik, a budget aide in President Bill Clinton’s administration. “If Republicans accept revenues, Democrats have to move a little bit” on entitlements, he said.
Social Security
Still, Minarik said, “Democrats don’t want to touch” Social Security and the Medicare eligibility age. Obama and other Democratic leaders have repeatedly said that Social Security is off the table
Boehner said the Republican offer tracks a proposal last year by Clinton’s former chief of staff, Erskine Bowles, which would generate revenue by limiting deductions and credits instead of raising tax rates.
Bowles, though, said in an emailed statement that the proposal doesn’t reflect his plan. “Circumstances have changed since then,” he said. “It is up to negotiators to figure out where the middle ground is today.”
Boehner called today’s Republican plan a “credible plan that deserves serious consideration by the White House.” He described last week’s White House proposal for $1.6 trillion in tax increases as a “la-la land offer.”
Stocks fell. The Standard & Poor’s 500 Index dropped 0.5 percent to 1,409.46 at 4 p.m. in New York. The Dow Jones Industrial Average lost 59.98 points, or 0.5 percent, to 12,965.60.
Chained CPI
Under the proposal, increases in Social Security benefits would be reduced under a new method of calculating cost-of- living increases. The so-called chained consumer price index would also apply to cost of living adjustments for government pensions and to setting income-tax brackets.
The plan would raise the eligibility age for Medicare recipients, currently 65, although it didn’t specify the size of the increase. That would save $100 billion, according to an excerpt of Bowles’s Nov. 1, 2011, congressional testimony attached to the letter sent to Obama.
House Democratic Leader Nancy Pelosi of California called the Republican proposal “another assault on the middle class, seniors and our future.”
Boehner’s letter said the additional $800 billion would come through “pro-growth tax reform that closes special- interest loopholes and deductions while lowering rates.” He didn’t lay out specific proposals for curbing tax breaks and didn’t offer additional revenue for 2013.
Dynamic Scoring
In the past, many Republican calls for additional revenue through a rewrite of the tax code have meant the money would come from higher economic growth spurred by the overhaul. Obama and the Congressional Budget Office won’t accept so-called dynamic scoring.
Republican aides said the $800 billion would come from conventional scoring, which means there would be a tax increase.
In a series of network television appearances over the weekend, Treasury Secretary Timothy F. Geithner challenged Republicans to make a counteroffer to the president’s plan. He said there would be no agreement without higher income tax rates on the wealthiest Americans. Boehner said yesterday that the White House was wasting time and that the talks were “nowhere.”
Obama’s plan would trade $600 billion in spending cuts for $1.6 trillion in tax increases, primarily targeting families with more than $250,000 in annual income.
Last week, Republicans said they would only consider creating new revenue by ending or limiting some deductions and credits and possibly by capping income-tax deductions for high earners.
9 Comments
First of all, Social Security and Medicare/Medicaid is most certainly an entitlement. This "fund" has not been fully funded for a long time. As for the younger generation "complaining" about having to pay back to 6.2% - the younger generation will see a percentage of the "entitlement" if they are lucky, but they will be paying into it their entire lives. We have passed the buck and we ask our children and their children to pony up for our planning problems (ever wonder why most pension plans are not around, for the same reason that SS is having problems).
I believe the burden needs to be felt by all generations because it is too late to cut it. Lower the percentage needed to pay in a little bit, cut some of the benefits and make it a little longer before we can get into SS.
Lastly, the move to cut loopholes is a political move - it makes the "masses" happy that loopholes are being cut and it has the same net result, for a short time. There will always be loopholes and additional loopholes made as long as politicians are in charge of our taxes.
Posted by: Zeo | December 6, 2012 10:18 PM
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I don't understand the Republicans. They don't want to increase rates because of fear that this will hurt the economy, but are willing to cut loopholes to make up the revenue amount. Wouldn't this also hurt the economy, just as much?
Posted by: Twphalen | December 6, 2012 7:36 PM
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I voted republican and now I have to say I am glad they lost. Social Security and Medicare is NOT an entitlement! Most of us have worked since we were in our teens to pay for Medicare and a little retirement income. The entitlement comes when you get to draw but have never paid in and believe me there are abuses! Most of us like those in D.C. don't get our salaries for life when we retire. Those of us about ready to go on Medicare or SS resents the fact that the younger generation now is only paying 4.2% when we paid 6.2% nearly all of our life plus they are crying about it being raised back to 6.2%, they should have never depended on the decrease to live on, so they need to cut back guess what how many seniors have had to cut back because no or very little COL. I might add how many of us seniors raised our kids with no EIC, CTC, Daycare credits or Education credits. I also would like to say any honest tax preparer could balance the budget and have surplus real quick if all the freebies and abuses was put to an end. Leave the seniors alone!
Posted by: oktaxlady | December 5, 2012 9:45 AM
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The government does such a superb job of managing money, I think that all of us ought to give them more money(sic)to manage.
They certainly have done a wonderful job with the Social Security funds. Not!! The last time I looked, Social Security funds were paid by the employer on behalf of the employee, in addition, the employee also "gave" the government money to manage on behalf of the employee for a future benefit to be paid to that employee, however, since the money so collected was never segregated and put into a "lock box" the "investment fund" holds only promises to repay. The fact that the Social Security "fund" is nearing the zero level, it simply exemplifies the ineptness of the management ability of the government. Their ability seems only to write checks on borrowed money, with no clue as to how to curb wasteful spending.
Posted by: mcameron@ddccpa.com | December 4, 2012 12:50 PM
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The Social Security Trust Fund is fiction. It never was fully funded and after Congress refused to fund the Viet Nam conflict it was collapsed into the general revenue fund but separately track as to the account balance. The only asset it has is the I.O.U. issued by government, i.e. the full faith and credit of the US.
Prior to that is was a true trust fund segregated from the general revenues of the government and not capable of being pledged or hypothecated. So, it was not supporting general government functions nor touchable to pay government indebtedness other than Social Security. Deposits today pay t-bill interest, are used to pay off t-bill redemption, pay the government's employees wages, etc.
Posted by: BrianL | December 4, 2012 11:38 AM
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Why not just take the spending cuts, add the tax increase, kill the temporary tax reductions, eliminate itemized deductions for all as well as the adjustments to gross income and repeal all the tax credits and preference items including preferred tax rates and be done with it. Then every citizen/person/business will be equally happy and upset; it is called equality under the law.
Oh, then have withholding at source at a uniform single tax rate on all payments of whatever nature and do away with the need to file income tax returns. Mandate all payments are through electronic means, do away with cash and the transfer agent with hold and make the gov't deposits. The agents could be either Federal agents or Federally chartered companies such as the Federal Reserve. In fact the Federal reserve could be the sole agent through the 12 banks.
So, say a transaction is a dollar and the tax is 1%, the recipient gets the dollar and the payer is charged $1.01. For payments like dividends and interest. the payer pays out the $1.00 and recipient gets $0.99. Capital transactions could be charged an excise tax (tax on transfers of assets), rather than profits/gains so a similar with holding could be done. No exclusions, no exemptions, no deductions, setoffs, etc. The wealthy get hit as hard as the middle class and lower economic earners. You could exclude certain payments such as unemployment, welfare, social security; those items that actually make sense that should not attract taxation. When the recipients spend the money, there is the tax but not like other payments where there is a tax on spending and on receipt of the funds. So, the effective tax on these sources of income and expenditures is 1/2 the tax on other sources of payments. While crude, figure out how much the tax rate would by charged on the GNP to fund the government and pay off the debt.
Of course this will put thousands out of work, tax planners, lawyers, tax auditors, tax preparers, even possibly the majority of the IRS. Banks could go virtual, with no printed money or coins it would be harder to do money laundering and much of the attractiveness of going to the underground economy would die out.
What is needed are some forward thinkers and government employees thinking outside the box and not as concerned with empire building. The technology is here; only the will for true change is not.
Posted by: BrianL | December 4, 2012 11:26 AM
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This attacking of Social Security is bull crap. It's a trust fund paid for by the recipients, and not by the income tax. In fact is a low interest fund used by the Government for a bloated Military Budget, and Corporate Largess.
And with Medicare taxes, this too will pay for itself, especially by allowing the Government to negotiate drug prices, a not "paying benefit" put in by the Republicans under George W Bush to garner votes for reelection. More Republican bull crap, reiterated by "nraacct" who seems to be another Republican shill.
While, yes, there is waste in Government, consider the waste in Private Industry from excess pay to extreme cost overruns in the defense industry, an industry I had worked in in the past as an Aerospace engineer (Check out the CF-A fiasco in the 1960's for just one example) to you name it.
Even "St" Reagan raised taxes when necessary, but "St Bernard" Speaker Bonehead claims a even a higher authority, "himself." And the whiners like "nraacct" are nothing more than "dittoheads." And before the "dittoheads" complain about their title, let them do something original to them, that is to think independently about what they are actually saying.
Posted by: tego@verizon.net | December 4, 2012 11:15 AM
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If you ever looked at the Federal budget, you will see that the two of the three biggest items are entitlement programs (Social Security and Medicare). If these issues are not addressed, then we just dig ourselves into a bigger hole. Otherwise, an even greater burden will be placed on our children.
Posted by: nraacct | December 4, 2012 9:54 AM
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When will the GOP learn, like "St." Reagan knew, that entitlement programs don't affect the debt? In fact, raising the Medicare eligibility age will increase costs because applicants will be older and more prone to illness. Expanding the Medicare pool, say to age 55, will lower costs because healthier people will contribute premiums toward the program's services while using less of them.
Posted by: JAscher | December 4, 2012 8:20 AM
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