Yesterday I mentioned that Obama is going to come out with a new deficit reduction plan to try to compete with Paul Ryan’s. While Obama adviser David Plouffe says they are willing to touch Medicare and Medicaid, it is clear that a big compontent of the plan will be tax increases. I’ve read a couple of different people saying they think Obama’s mix of tax increases and spending cuts could reduce the debt faster than the Ryan plan.
But remember that Obama has repeatedly ruled out letting the Bush tax cuts expire for people making less than $250,000 a year. In his comments yesterday, Plouffe suggested that it is this group, not the middle class, that will be targeted by the new Obama plan. That automatically lops off $3.2 trillion from the $3.9 trillion Democrats think they can save from junking the tax cuts. And Obama’s original 2012 budget already assumes an end to the Bush tax rates. Payroll taxes on the wealthy were already raised to fund Obamacare. And Obama committed himself to lowering, not raising, the corporate income tax in the State of the Union.
Absent some really creative accounting or a VAT, I don’t see Obama getting to bigger savings with smaller spending cuts even with static revenue assumptions. Unless he has some other tax increases up his sleeve.