The New York Times reports on the president’s counteroffer to Speaker John Boehner’s “millionaire tax” offer from this weekend:
Mr. Boehner of Ohio had offered the president a deficit framework that would raise $1 trillion over 10 years, with the details to be settled next year by Congress’s tax-writing committees and the Obama administration. In response, Mr. Obama reduced his proposal to $1.2 trillion from $1.4 trillion on Monday at a 45-minute meeting with the speaker at the White House. That was down from $1.6 trillion initially.
The White House plan would permanently extend Bush-era tax cuts on incomes below $400,000, essentially meaning that only the top tax bracket, 35 percent, would rise to 39.6 percent.
The president’s plan would cut spending by $1.22 trillion over 10 years, an official said, $800 billion of it in programmatic cuts, and $122 billion by adopting a new measure of inflation that slows the growth of government benefits, especially Social Security. The White House is also counting on $290 billion in savings from lower interest costs on a reduced national debt.
Of the $800 billion in straight cuts, the president said half would come from federal health care programs; $200 billion from other so-called mandatory programs, like farm price supports, not subject to Congress’s annual spending bills; $100 billion from defense spending; and $100 billion from domestic programs under Congress’s annual discretion.
Today at the White House press briefing (after the president’s meeting with Boehner this morning), Jay Carney asserted that “we have not seen a proposal, besides the president’s, that achieves the balance that the president insists be part of a deal.” The president’s original proposal called for $1.6 trillion in tax increases and just $350 billion in net spending cuts, implying that about a 4:1 ratio is “balanced” (in some strange world it could be, if you count the spending caps of the Budget Control Act, etc., as already-enacted cuts).
The president has now proposed a deal with, to be precise, a ratio of spending to taxes of 1 1/60 to 1 (or if you don’t count the interest-savings canard as they do, about 1 1/3 to 1); this apparently also qualifies as balanced. But guess what doesn’t qualify? Speaker Boehner’s proposal from the weekend, in the ratio of . . . 1 to 1/16 ($1 trillion in spending, $940 billion in revenue). That is, the president’s offer, 1.0167 to 1, is balanced; Speaker Boehner’s offer, 1 to 1.06, is not.
(Veronique de Rugy has written in this space about the falsity of the president’s “balanced approach.”)
Correctly, Boehner spokesman Brendan Buck told Bloomberg this evening that the plan actually includes $930 billion in spending cuts, not the $1.22 trillion the administration claims. The difference between the $930 billion and the president’s $1.22 trillion calculation is $290 billion worth of interest payments — the administration is right that, obviously, forgone deficit spending allows us not to spend interest on future debt, and that’s good for the deficit picture. But this significantly inflates the concessions he’s made to Republicans and is something of a canard, because it doesn’t involve actually restraining the growth of government spending, an important GOP priority.
In fact, since the static assumption is that lower spending and tax increases will affect the deficit in equal ways, much of the $290 billion in interest saved comes from the fact that higher taxes mean we don’t have to go into even more debt (in fact, the majority of the interest-spending reductions would result from higher taxes, not lower spending). That’s pretty clever: By raising taxes, the president would like to take credit for cutting spending.
As a final note, the president’s counteroffer continues to assume that the payroll-tax cut will expire come January 1. Various Wall Street banks predict that the expiration of this policy alone will reduce growth by about 0.5 or 0.6 percent of GDP in 2013, via a $100-plus billion reduction in consumer spending. Meanwhile, the Tax Policy Center has found that it would (or rather, will) hit the incomes of the middle class the hardest:
Neither the president nor Speaker Boehner, apparently, has appetite for a crucial piece of short-term stimulus which most benefits the middle class (in favor of which NR’s editors have editorialized).