U.S. Markets close in 5 hrs 14 mins
  • S&P 500

    -39.05 (-1.07%)
  • Dow 30

    -399.03 (-1.33%)
  • Nasdaq

    -163.76 (-1.34%)
  • Russell 2000

    -25.75 (-1.39%)
  • Crude Oil

    -0.48 (-1.05%)
  • Gold

    -12.40 (-0.69%)
  • Silver

    -0.24 (-1.08%)

    +0.0010 (+0.0839%)
  • 10-Yr Bond

    +0.0100 (+1.19%)
  • Vix

    +1.26 (+6.05%)

    +0.0015 (+0.1093%)

    +0.1560 (+0.1499%)

    +122.33 (+0.63%)
  • CMC Crypto 200

    +16.04 (+4.40%)
  • FTSE 100

    -24.35 (-0.38%)
  • Nikkei 225

    -211.09 (-0.79%)

Obama’s Deficit Plan: The President Embraces Specifics

Daniel Gross

Hey! Who replaced the dithering guy who lives in the White House with somebody who acts like he wants to be President?

On the heels of the large jobs plan announced earlier this month, President Obama has announced his own plan to reduce the deficit by up to $3 trillion. (Details, per the Times: $1.5 trillion in higher revenues, through limiting deductions, shutting loopholes and letting the Bush tax cuts expire, and $1.5 trillion in spending savings from tinkering with entitlement programs and counting savings from winding down operations in Iraq and Afghanistan). Like the jobs plan, this deficit reduction plan doesn't have much of a chance of becoming law. As Majority Leader John Boehner signaled in his speech last week, tax increases of any sort simply aren't acceptable to Congressional Republicans.

But this isn't about legislation. The President has been urged, from left, right, and center, to lead with declarative plans. For much of the past few years, President Obama has outsourced legislation to Congress or to commissions, negotiated with himself in public, and sought compromise for the sake of compromise. He created the Simpson-Bowles Commission and then refused to endorse its deficit-reducing proposals. He engaged in long negotiations on the debt ceiling without putting forward his own specific plan to the public. President Obama could have come forth with deficit-reduction plans at any point in his presidency, but he didn't. And so very few people believed he was serious about making a dent in the national debt. Obama spent much of his first term searching for deals with Republicans, even when it was clear there were none to be had. He badly misplayed the debt ceiling extension, leading Boehner to crow that he got 98 percent of what he wanted.

And so with time running out on his presidency — the 2012 election is fewer than 14 months away - he's coming up with specific ideas and numbers instead of focusing on process. The country has a jobs crisis? Here's my plan to help create more jobs. The country has a debt crisis? Here's my plan to reduce deficits by $3 trillion over ten years. President Obama is laying an agenda out there for the Republicans to embrace or reject, knowing full well that they will reject it. (Either that, or he has a very poor memory.) Of course, putting out specifics opens you to criticism. But at this point, he has no choice.

Consider the three possible outcomes, in increasing order of likelihood. One: Congress passes the plan in its entirety. Two: Congress and the President make a large deal that is acceptable to both parties, and jointly own the end result. Three: Congress rejects it out of hand, refuses to compromise over the issues of taxes, and the two parties agree to take it to the public in the fall of 2012. The first two outcomes are obvious wins for Obama, which is why House Republicans are unlikely to let either happen. President Obama and his advisers are clearly gambling that the third outcome is a winner too.

Why would they think that? Compared with Congress, he's got a bigger pulpit, a higher favorable rating, and a plan whose elements are more popular with the public — or at least less unpopular. The House GOP's formal deficit reduction position is the Ryan Plan, which ends Medicare as a fee-for service entitlement, whittles other government spending down to implausibly low levels, and keeps taxes low, especially on high earners. (This CNN poll from June suggests the public isn't crazy about it.) As this more recent CNN poll suggests, the public tends to favor preserving entitlements in their existing form, cutting spending, and raising taxes on the wealthy and corporations. Can President Obama translate those policy preferences into political preferences? The public has a choice of plans, and we'll know the answer next fall. (Unless, of course, both President Obama and the House Republican majority are re-elected, or both thrown out.)

Until then, we shouldn't expect too much help for the unemployed or too much affirmative movement on deficit reduction. But people who want less spending and higher taxes on the wealthy shouldn't fret. We're in a situation where paralysis, enmity and politics weigh in favor of $2 trillion in deficit reductions over the coming decade. The Bush-era tax increases are poised to expire at the end of 2012. Every major deficit reduction in recent history has paired spending cuts with tax increases. Imagine a scenario in which Democrats refuse to accept a deal that doesn't include tax increases, and in which Republicans refuse to accept a deal that does include one. (It's not much of a stretch.) The Congressional Supercommittee fails to come up with a deal. That triggers some $1.2 trillion automatic cuts in spending. Next, Congress and the White House can't agree on an extension of the Bush tax cuts. They all expire, leading to a projected $800 billion in extra revenues. A do-nothing Congress, not working with a do-nothing President, can achieve a great deal.

Daniel Gross is economics editor at Yahoo! Finance

Email him at grossdaniel11@yahoo.com; follow him on Twitter @grossdm