The President believes that we need a comprehensive, pro-growth economic strategy that invests in winning the future, lays the foundation for strong private-sector job growth and ensures that shared prosperity will keep the American dream alive for generations to come. A key component of that strategy must be a commitment to fiscal responsibility and to living within our means. Today, the President is laying out a comprehensive, balanced deficit reduction framework to cut spending, bring down our debt and increase confidence in our nation’s fiscal strength, while supporting our economic recovery and ensuring we are making the investments we need to win the future.
$4 Trillion in Deficit Reduction: The President is setting a goal of reducing our deficit by $4 trillion in 12 years or less. This deficit reduction would be phased in over time to protect and strengthen our economic recovery and the recovering labor market.
Debt on a Declining Path, Backed Up By An Across the Board “Debt Failsafe” Trigger: The President’s framework would require that, by the second half of the decade, our nation’s debt is on a declining path as a share of our economy. To enforce this requirement, the President is calling on Congress to enact:
* A Debt Failsafe that will trigger across-the-board spending reductions (both in direct spending and spending through the tax code) if, by 2014, the projected ratio of debt-to-GDP is not stabilized and declining toward the end of the decade. Consistent with prior fiscal enforcement triggers put in place by Presidents Reagan, George H.W. Bush and Clinton, the trigger should not apply to Social Security, low-income programs, or Medicare benefits.
Balance Between Spending Cuts and Tax Reform: The President’s framework would seek a balanced approach to bringing down our deficit, with three dollars of spending cuts and interest savings for every one dollar from tax reform that contributes to deficit reduction. This is consistent with the bipartisan Fiscal Commission’s approach.
Shared Sacrifice from All, Including the Most Fortunate Americans: The President believes strongly that, as we make difficult choices to live within our means, we cannot afford to make our deficit problem worse by extending the Bush tax cuts for the wealthiest Americans.
Bipartisan, Bicameral Negotiations on a Legislative Framework: The President has asked Majority Leader Reid, Speaker Boehner, Minority Leader Pelosi and Minority Leader McConnell to each designate four Members from their caucuses to participate in bipartisan, bicameral negotiations led by the Vice President, beginning in early May. The goal of these negotiations is to agree on a legislative framework for comprehensive deficit reduction.
Policy Highlights. The policy highlights in the President’s framework build on the down-payment included in his FY 2012 Budget. They include:
* Non-security discretionary spending: The President is proposing to build on the savings from the FY 2011 budget agreement, while investing in key drivers of economic growth like energy innovation, education, and infrastructure. This would entail cutting non-security discretionary spending to levels consistent with the Fiscal Commission, saving $770 billion by 2023.
* Security spending: The President’s framework will go beyond the Fiscal Year 2012 Budget to achieve deeper reductions in security spending. It sets a goal of holding the growth in base security spending below inflation, while ensuring our capacity to meet our national security responsibilities, which would save $400 billion by 2023.
* Health care: The President’s framework builds on the Affordable Care Act by including new reforms aimed at further reducing the growth of health care spending – a major driver of long-term deficits. The President opposes any plan that would simply shift costs to seniors and the vulnerable by undermining Medicare and Medicaid. Building on the foundation of the historic deficit reduction achieved through the Affordable Care Act, the framework would save an additional $340 billion by 2021, $480 billion by 2023, and at least an additional $1 trillion in the subsequent decade. These savings complement the new patient safety initiative that could lower Medicare costs by another $50 billion over the next decade by providing better care. The President’s framework includes initiatives that will:
* Bend the long-term cost curve by setting a more ambitious target of holding Medicare cost growth per beneficiary to GDP per capita plus 0.5 percent beginning in 2018, through strengthening the Independent Payment Advisory Board (IPAB).
* Make Medicaid more flexible, efficient and accountable without resorting to block granting the program, ending our partnership with States or reducing health care coverage for seniors in nursing homes, the most economically vulnerable and people with disabilities. Combined Medicaid savings of at least $100 billion over 10 years.
* Reduce Medicare’s excessive spending on prescription drugs and lower drug premiums for beneficiaries without shifting costs to seniors or privatizing Medicare. Combined Medicare savings of at least $200 billion over 10 years.
* Other mandatory spending: Outside of health care, comprehensive deficit reduction must include savings in other mandatory programs, including agricultural subsidies, the federal pension insurance system, and anti-fraud measures, while protecting and strengthening programs that serve low-income families and other vulnerable Americans. The President’s framework includes a target of $360 billion in savings from other mandatory programs by 2023.
* Tax reform: the President is calling for individual tax reform that closes loopholes and produces a system which is simpler, fairer and not rigged in favor of those who can afford lawyers and accountants to game it. The President supports the Fiscal Commission’s goal of reducing tax expenditures enough to both lower rates and lower the deficit.
* Social Security: The President does not believe that Social Security is in crisis nor is a driver of our near-term deficit problems. But, in the context of an aging population and a Social Security wage base that is declining as a share of overall earnings, Social Security faces long-term challenges that are better addressed sooner than later to ensure that the program remains for future generations the rock-solid benefit for older Americans that it has been for past generations. That is why the President supports bipartisan efforts to strengthen Social Security for the long haul. These efforts should be guided by several principles, including strengthening the program and not privatizing it, improving retirement security for the vulnerable while protecting people with disabilities and current beneficiaries, and not slashing benefits for future generations.