President Obama is set Monday to detail his plan for roughly $3 trillion in debt cuts.
NEW YORK (CNNMoney) — President Obama will unveil a plan on Monday to cut the national debt by roughly $3 trillion over the next decade.
Obama’s plan reflects his vision for how best to put the country on a more fiscally sustainable course, so it is different in nature than the kind of legislative compromise he was trying to broker this summer during the debt-ceiling debate, a senior administration official said.
A driving principle behind the proposal is that high-income individuals and corporations should pay more in taxes than they do currently so that they will bear some of the burden of debt reduction going forward.
Indeed, in remarks on Monday morning, the president will make clear he’ll veto any debt-reduction legislation that takes “one dime away from Medicare benefits without asking the wealthy to pay their fair share,” the official said.
Obama will even introduce the “Buffett Rule” for millionaires — named after investor Warren Buffett, who has frequently argued that the very rich are not taxed enough.
The president’s debt reduction proposal is likely to placate — at least a little — those in his Democratic base who have been adamant that they want the rich to pay more and they don’t want Medicare or Social Security benefits hit. (Read: National debt: What you need to know)
The White House said last week the president’s plan will not include any Social Security reform proposals. And another senior administration official noted Sunday that the plan will not call for raising the Medicare eligibility age, which fiscal experts have recommended.
But the Obama plan is unlikely to draw much support from Republicans, who have been adamant about not wanting to raise anyone’s taxes. (Read: Where left and right actually agree)
The plan Obama will release includes some $3 trillion in savings on top of the approximately $1 trillion called for under the debt ceiling deal enacted in August.
Of that, however, close to $500 billion would have to be used to pay for the American Jobs Act, which Obama proposed last week. (Read: Cutting now could hurt economy, CBO says)
Here’s how his proposed savings break down.
Mandatory spending cuts: $580 billion.
Of the total cuts in mandatory spending, $248 billion will come out of Medicare. And about 90% of those savings will come from reducing overpayments in the system, a senior administration official said. He added that any changes to Medicare benefits won’t kick in before 2017.
Another $72 billion will come from Medicaid and other health programs.
It’s not clear yet where the other $260 billion in remaining savings will come from. Smaller mandatory programs such as farm subsidies and federal worker pension benefits have often been included in fiscal experts’ recommendations.
Tax revenue: $1.5 trillion.
Of the total revenue raised by tax changes, $800 billion would be realized by letting some of the Bush-era tax cuts expire for high-income households — something Obama has called for repeatedly.
Another $400 billion would result from capping the value of itemized deductions and other exemptions for high-income households.
The remaining $300 billion would come from closing various tax loopholes, a senior administration official said.
In addition, the official said, the president will offer guiding principles for future tax reform.
Any reform plan should lower tax rates, eliminate wasteful loopholes, boost job creation and economic growth, and be consistent with the Buffett Rule.
Typically, the wealthiest Americans derive a lot of income from investments, which are often taxed at a lower rate than ordinary income such as wages. As a result, they can end up owing a lower percentage of their income in federal taxes than someone who makes far less money, especially once payroll taxes are factored in.
The concept of the Buffett Rule is that those earning more than $1 million should not be allowed to pay a lesser percent of their income in federal taxes than Americans lower down the income scale.
War savings: $1.1 trillion.
The administration is counting the reduction in spending in Iraq and Afghanistan over the next decade that will result from the planned drawdown of troops and the changing nature of the operations in those countries.
In addition, the admininstration is counting savings that would result from spending caps it has proposed on future overseas contingency operations.
Interest savings: $430 billion.
Whenever policies are changed to lower future deficits, those deficits are reduced in part because of the interest costs that will be saved from less borrowing.