This afternoon President Obama laid out the headlines of his proposal to cut the yawning U.S. federal budget deficit. It seeks $4 trillion of reductions over 12 years, and is well-balanced, in that it takes something from everyone and therefore should irritate all parties concerned so much that it won't get very far. But that's the nature of such proposals -- to get out an ideological signal and hope some of the message gets through in the end.
The proposal, spanning 12 years, is for $2 trillion of spending cuts on everything; $1 trillion in interest savings as debt is reduced; and $1 trillion of tax increases, essentially on wealthy individuals. It intends to protect Medicare, as well as other investments in America such as infrastructure, energy, scientific research and education.
The first part of President Obama's speech was actually rather inspiring, painting a picture of America's future, and the aim of continuing to be the great country that we are. He also reminded us of the budget compromises of the 1990s, one during the tenure of the first President Bush, and two under President Clinton (yes, with the urging of a Republican-led Congress), when domestic spending was reduced and getting the budget into surplus, albeit briefly. (That was all thrown away in the 2000s, as we spent money we didn't have on wars, tax cuts to high income people and prescriptions for seniors.)
I watched the speech live on MSNBC, and afterward watched a sampling of the embarrassing commentary from congressmen from both sides. I'm sure they represent their parties' views, or they wouldn't have been allowed up there.
Any plan that will actually make progress will have to involve higher taxes -- sorry, folks, but that is just the math. It also will require cuts on everything in sight, but that argument is more a question of degree at this point.
I'm not looking forward to this debate. The Republicans that I saw were stuck on the idea that "higher taxes kill jobs," and I guess the opposite notion that lower taxes create them, through supply-side economics. We know from experience that idea is not always true -- it may have worked once on a sclerotic U.S. economy in the 1980s, coming out of a huge recession when taxes were much higher, but it hasn't the last couple of times out. (See my post on that notion here.)
I hope Congress will get serious about the long term. The financial markets' fears are already driving gold higher, and are going to send our interest rates through the roof without some sign that either party is thinking beyond the next slogan or election cycle.