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President Barack Obama outlines his fiscal policy during an address at George Washington University in Washington, April 13, 2011.Pablo Martinez Monsivais/AP

The "adult conversation" that U.S. politicians long have said is needed to avert a fiscal calamity has finally begun - sort of.

On Wednesday, President Barack Obama played catch-up, presenting a $4-trillion (U.S.) deficit-reduction plan to rival the $4-trillion budget proposal on offer from the Republican leadership in the House of Representatives.

The White House said the President's 12-year proposal would reduce the U.S. budget shortfall to 2.5 per cent of gross domestic product from the current 10.9 per cent of GDP by lowering program spending and ending tax breaks.

In a rousing speech of the type that helped him get elected two years ago, Mr. Obama also sought to sharpen the differences between his approach to the deficit and that of Paul Ryan, the head of the House budget committee who drafted the Republican strategy.

The Republican budget would seek to curtail future health spending by replacing current benefits with a voucher-like system while lowering personal and business tax rates to 25 per cent from the current 35 per cent.

Mr. Obama said he would relieve the debt burden without dramatically changing health benefits, and criticized Republicans for suggesting the deficit can be reduced without increased tax revenue. The White House said the Republican proposal to limit Medicare, which covers health costs for seniors, would force recipients to come up with an extra $6,000 a year to cover their annual health bill. Mr. Obama said he would increase taxes on the wealthiest Americans.

"They want to give people like me a $200,000 tax cut that's paid for by asking 33 seniors each to pay $6,000 more in health costs," Mr. Obama said in front of an audience of students at George Washington University. "That's not right. And it's not going to happen as long as I'm president."

Mr. Obama's remarks were more political than some observers were expecting. After coming within minutes of a government shutdown on Friday, there was some expectation that Republicans and Democrats would seek to ease up on the partisanship. But Mr. Obama, who last week launched his fundraising effort for the 2012 presidential campaign, clearly thought otherwise.

"The speech is strikingly more political than the plan itself," said Matt McDonald, a partner at Washington-based consultancy Hamilton Place Strategies. "It's a sure sign that 2012 is upon us."

The partisan nature of Mr. Obama's plan provoked irritated responses from Republicans. Jeb Hensarling of Texas accused Mr. Obama of "setting a new standard for class warfare," while Eric Cantor, the House majority leader, blatantly mischaracterized Mr. Obama's program by saying the only concrete proposal the White House had was to raise taxes. Mr. Ryan said he was disappointed by the "political broadside from our campaigner in chief."

To be sure, if Republican offence is more than superficial, Mr. Obama's campaign-style promotion of his deficit plan could backfire. The White House needs Republican support to lift the borrowing limit, which will be breached in May. Many Republican lawmakers elected with Tea Party support have indicated they oppose giving the administration legislative permission to borrow, despite warnings that such an action could force the U.S. government to default on its debt.

Rhetoric aside, U.S. politicians appear to be edging toward a compromise that might end the comparisons of the world's largest economy to countries such as Greece and Ireland, which were forced to accept bailouts from the European Union and the International Monetary Fund to avoid default.

"There are a lot of individuals in Washington who are really thinking about things," Kenneth Rogoff, a Harvard University professor who co-wrote a seminal study on the history of sovereign defaults, said in an interview on the weekend. Prof. Rogoff, who published his book with Carmen Reinhart last year, said he and Ms. Reinhart recently met with a group of 40 senators to discuss their research. "They are very engaged," Prof. Rogoff said.

U.S. bond prices rose, a sign investors were gaining confidence that U.S. politicians would resolve their differences and reduce the government's need to borrow.

"It seems both sides of this debate are now targeting lower debt and lower deficits," Steven Hess, senior credit officer at Moody's Investors Service, a credit-rating agency, told Bloomberg News. "We do see thisObama as a turning point in terms of the debate. We would view that as a positive, but we'll have to wait to see the outcome."

Mr. Obama signalled his seriousness by proposing a "debt failsafe" that would trigger broad spending cuts and tax increases if the budget deficit isn't on track to average 2.8 per cent of GDP over the second half of the decade. The President said lawmakers should seek to reduce the growth of health costs by seeking ways to deliver services more cheaply. He would attack government spending by reviewing the budgets of agencies ranging from the Pentagon to the Agriculture Department. Revenue would come from limiting the amount of itemized tax breaks the wealthiest 2 per cent of the population can claim on their returns.

"The great risk for the White House was coming to the table late without a credible plan," Mr. McDonald said. "This is more detailed than what I was expecting. It's the basis for a discussion."

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