THE DEFICIT reduction plan unveiled by President Barack Obama yesterday was immediately rejected by Republican leaders, who accuse Mr Obama of waging class warfare.
In his fourth such plan this year, Mr Obama repeatedly appealed to Americans’ sense of fairness, saying that “. . . for us to solve this problem, everybody, including the wealthiest Americans and biggest corporations, have to pay their fair share.”
The speech, in the White House Rose Garden, was seen as the opening salvo in a new round of budgetary negotiations between Republicans and Democrats, and as an attempt by Mr Obama to win back the disaffected left of his party. The “millionaires’ tax” proposed by the president has particularly angered conservatives.
Mr Obama specifically addressed Republican allegations of class warfare. “Now, we’re already hearing the usual defenders of these kinds of loopholes saying this is just ‘class warfare’” the president said. “I reject the idea that asking a hedge fund manager to pay the same tax rate as a plumber or a teacher is class warfare.”
Mr Obama wants to set a minimum tax for households earning more than $1 million a year. The White House has dubbed the plan the “Buffett rule”, after the billionaire investor Warren Buffett, who says it is unfair for him to be taxed at a lower rate than his secretary.
According to the Internal Revenue Service, the top 400 earners in the US paid an average of 18.11 per cent income tax in 2008. Since the Bush administration, investment income has been taxed at 15 per cent, compared to 35 per cent on income earned by upper middle class Americans.
Mr Obama did not say what the new tax rate on millionaires would be. Nor did he provide details of his plan to reform the US corporate tax system. Although the rate is nominally set at 35 per cent, some large corporations pay no tax at all.
The treasury secretary, Timothy Geithner, said the corporate tax reform plan would be announced this year, and would restore fiscal soundness to the US, whose credit rating was downgraded last month.
In another sign of a newly combative attitude towards Republicans, Mr Obama promised, “I will veto any Bill that changes benefits for those who rely on Medicare but does not raise serious revenues by asking the wealthiest Americans or biggest corporations to pay their fair share.”
Mr Obama said that Speaker of the House John Boehner has been unwilling to compromise. Mr Boehner immediately rejected the Obama plan, saying in a statement that Mr Obama “has not made a serious contribution” to attempts by a bipartisan congressional committee to find $1.2 trillion in spending cuts over the next decade. If agreement cannot be reached by December 23rd, deep cuts in defence and entitlements will take effect automatically.
Some $1.5 trillion of the more than $3 trillion in deficit reduction which Mr Obama seeks over the next decade would come from increased taxes on the rich and corporations. $800 billion would be gained from allowing Bush-era tax cuts on households earning more than $250,000 a year to expire. The remaining $700 billion would come from closing tax loop-holes, limiting itemised tax deductions and ending tax breaks for investment fund managers, petroleum companies and the owners of corporate jets.
The remaining cuts include $1.1 trillion in savings from winding down the wars in Iraq and Afghanistan – an accounting sleight of hand that has been used by Republicans as well. The president is offering to cut $580 billion in healthcare and medical entitlements – the chief targets of Republican deficit busters.
With yesterday’s speech, Mr Obama stepped up efforts to portray Republicans as defenders of the rich in the 2012 presidential election campaign. Republicans do not use the terms “rich” or “wealthy”, but instead refer to the most affluent Americans as “job creators”.
Governor Rick Perry of Texas, the leading contender for the Republican nomination, has promised to remedy what he calls the “injustice” of nearly 50 per cent of Americans not paying federal income tax because their incomes are so low.