President Obama came out today with a counter plan to tackle the national debt. According to his plan, through a series of cuts, tax increases, and other measures his plan would trim roughly $4 trillion from the deficit in the next twelve years. The focus of his plan is to reduce the annual deficit to 2.5 percent of the GDP by 2015. Currently, the annual deficit is roughly 11 percent of the GDP. In his speech introducing the proposal, he stressed the importance of revising the tax code to lower rates as well as sealing up loopholes. He also repeated his intention of allowing the Bush-era tax cuts to expire in 2012.
According to Bloomberg, another core component of the President’s proposal is his interest in passing what is being referred to as a ‘debt failsafe’ in the event that the debt and GDP ratio has not made progress by 2014. This failsafe would result in automatic cuts, but these cuts would not apply to entitlements such as Social Security, Medicare, and other government-run social support programs. He also would target defense spending, cutting nearly $400 billion from current and future programs. The markets fell on the news today, and the primary drops occurred within the defense contracting industry.
The proposal introduced by Obama today is in stark contrast to the policy introduced by Representative Paul Ryan of the House Budget Committee this past week. The criticisms from the Republicans largely hinge on the fact that the Republican leaders have been clear that the new budget must not include any increases in taxes. In terms of sheer numbers, Representative Ryan’s plan would cut the deficit by $4.4 trillion over the next 10 years, relying primarily on large cuts in government spending. In his speech today, Obama criticized the plan presented by the Republican Party primarily on where the cuts were made, rather than the level of cuts in general. This pivotal piece of legislation will determine the direction of the country for years to come, and neither side is backing down.
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