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Obama Has It Right in Deficit Plan

A Commentary By Froma Harrop

Tuesday, September 20, 2011

President Obama's deficit-cutting plan is not perfect, but close to it. It's fiscally smart and politically smart.

He said that about a third of the money would come from higher taxes and the rest from reductions in spending. The cuts would be in spending on wars and also on entitlements. At the end of the day, it would slim the federal deficit by more than $3 trillion over 10 years. Of course, the day probably won't end with Obama's plan in one piece. Republicans are loaded for bear, having already dragged out their "class warfare" theme song. But something along these lines would greatly enhance confidence in America's ability to put its fiscal house in order.

Thankfully, the president will not follow through on some entitlement cuts he's talked about before. He'll leave Social Security alone. That self-funding program is doing fine and needs no radical fixes. And he's no longer talking about hiking the age for enrolling in Medicare from 65 to 67.

Savings in Medicare would come from long overdue "structural reforms" in the program. This means addressing the wasteful way Medicare pays doctors per procedure rather than for results. The wacky incentives now in place encourage overly expensive and unnecessary treatments that subject taxpayers and beneficiaries to higher bills for no better care -- and, in some cases, worse care.

The big fight with Republicans is over taxes, natch. The president proposed raising taxes, mainly on high-income Americans and corporations. His idea of actually lowering the rates on corporations but getting rid of a bunch of special tax deals powerful interests wrested from paid-off politicians makes powerful sense.

Obama had previously called for bringing tax rates paid by millionaires and billionaires more in line with taxes paid by middle-class folk. It may be news to the masses that many of the wealthiest Americans pay income taxes at lower rates than do police officers, nurses and other earners of far lesser sums. That's because the richer you are, the more likely that your income comes from investments. Stock dividends and capital gains are taxed at a low 15 percent.

This is what billionaire investor Warren Buffett meant when he complained that he's paying taxes at lower rates than his secretary. And that's why Obama is calling his proposal to let taxes rise for the richest Americans "The Buffett Rule."

I do wish everyone would stop calling this idea a "millionaire's tax." Many ordinary Americans are millionaires when you add up their home equity, 401(k) retirement plans and other investments. This proposal would raise taxes on those making $1 million or more in a given tax year. That leaves out your average Pizza Hut franchisee.

Meanwhile, the weekend jabber shows featured leading Republicans trying to equate rich people with job creation. As House Budget Committee Chairman Paul Ryan, R.-Wis., said, "If you tax job-creators more, you get less job creation."

Hmmm. I don't see Republicans requiring high-income Americans to hire a single soul in return for these low tax rates. Some heirs of great American fortunes haven't worked a day in their lives or hired anyone other than the household help. Some of our richest industrialists made their piles shutting down American factories and moving operations to China. If we want to encourage job creation -- in America -- give the tax breaks to people who actually create jobs for Americans.

Obama offered the sharp line: "This is not class warfare. It's math." He made a forceful and easy-to-understand case that this plan could put America back on the road to fiscal sanity. Now he must defend it -- and with conviction, please.

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