Obama Deficit Plan: Raise Taxes, Cut Spending

Last Updated Sep 19, 2011 11:52 AM EDT

President Obama announced a sweeping $3+ trillion, ten-year deficit reduction plan today, comprised of tax increases for the wealthy; an overhaul of the corporate tax code; and changes to Medicare and Medicaid. The plan will be submitted to the congressional "super-committee," which was formed out of the debt ceiling agreement. That committee must create a deficit reduction plan by November 23rd, which then must be approved by Congress by December 23rd. If not, $1.2 trillion in cuts in defense and entitlement programs would automatically occur in January 2013.

The new Obama plan breaks down into $1.5 trillion of tax increases (to take effect 2013) and the balance in spending cuts/savings:
  • Expiration of Bush tax cuts for families making more than $250,000 and individuals earning more than $200,000 ($800B)
  • Limitation of itemized deductions for families making more than $250,000
  • Millionaire's Tax (the so-called "Buffett Rule" contains few details, but is likely to impose a minimum tax rate for households that earn more than $1 million in annual income, including both earned income and investment income in the form of interest income and capital gains)
  • Overhaul Corporate Tax Code: Lower tax rates with new limits on deductions
  • Ending tax breaks for oil companies, corporate jet owners and investment managers
  • Entitlement Cuts (total of $580B, including reducing payments to providers and limiting benefits to wealthier Americans for Medicare ($248B) and Medicaid ($72B)
  • Interest Savings from lower rates on the national debt ($430B)
  • Savings from ending the Iraq and Afghanistan wars ($1.1T)
This is the opening bid in what is likely to be an acrimonious debt-reduction negotiation. The big difference between this debate and the debt ceiling fiasco is that the clock is ticking for the first $1.2 trillion of cuts. It's hard to imagine that lawmakers and the administration will bang out a larger deal amid the deep partisan divide that exists, especially as an election year looms.

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    Jill Schlesinger, CFP®, is the Editor-at-Large for CBS MoneyWatch. She covers the economy, markets, investing or anything else with a dollar sign. Prior to the launch of MoneyWatch in 2009, Jill was the chief investment officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.

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