“We have to live within our means, we have to reduce our deficit, and we have to get back on a path that will allow us to pay down our debt,’’ Obama said. “And we have to do it in a way that protects the recovery, and protects the investments we need to grow, creates jobs and win the future.’’
Obama’s plan would generate $480 billion in savings in Medicare, the federal program that provides health coverage for the elderly, and Medicaid, which is a joint federal and state program that pays for health costs and long-term nursing care for the poor.
By offering to reform and restrain the growth in the entitlement programs of Medicare and Medicaid, Obama runs the risk of offending his strongest supporters in the Democratic Party, many of whom deeply oppose cutting federal spending for the two health programs.
But projections by the non-partisan Congressional Budget Office make clear that without changes in federal entitlement programs, the budget could only be balanced through massive tax increases. The CBO calculates that under current law, the federal government’s publicly held debt would increase by nearly $7 trillion in the next decade.
In its January report, CBO concluded that federal spending on entitlements – which includes Social Security and Children’s Health Insurance – would increase from 10 percent of the nation’s gross domestic product to 16 percent during the next 25 years.
“So here’s the truth,’’ Obama said. “Around two-thirds of our budget – two thirds – is spent on Medicare, Medicaid, Social Security and national security.’’
Obama, like the budget-cutting plan proposed this month by House Budget Committee Chairman Paul Ryan, R-Wis., chose not to offer any changes to Social Security.
To make certain the deficit goals he outlined are reached, Obama proposed what the White House described as a trigger that would automatically impose spending cuts if budget projections do not show a decline in the ratio between federal debt and the nation’s gross domestic product.
The trigger, which would take effect in 2014, presumably would be modeled after the Gramm-Rudman law of the 1980s, which imposed automatic spending reductions if Congress failed to reduce deficits. Obama’s trigger would exempt Social Security, Medicare and low-income programs.
“That should be an incentive for us to act boldly now, instead of kicking our problems further down the road,’’ Obama said.
The president also proposed that Vice President Joe Biden next month would launch a new round of negotiations with House and Senate leaders in an effort to produce a grand compromise by the end of June that would dramatically reduce the federal deficit.
“I don’t expect the details in any final agreement to look exactly like the approach I laid out today,’’ Obama said. “This is a democracy. That’s not how things work.’’
The speech was designed not only to demonstrate that Obama is serious about reducing the deficit, but reducing objections by conservative lawmakers to raise the government’s debt ceiling of $14.3 trillion. Without Congress approving an increase, the government could not borrow money and might face a default, which would have a ruinous impact on the economy.
But there is a vast chasm between the White House and Republicans on how to reduce the deficit. At a news conference on Capitol Hill, House Speaker John Boehner, R-West Chester Twp., made clear that House Republicans would not agree to any tax increases to reduce the deficit.
“I have been pushing the president for months to engage in this discussion about our long-term fiscal mess,’’ Boehner said. “I’m glad that he’s finally decided to engage in it. But there’s been a lot of discussion about the need to raise taxes. And I’ll just say this: We can’t tax the very people that we expect to re-invest in our economy and to create jobs. Washington has a spending problem, not a revenue problem.’’
While Obama would trim spending for Medicare and Medicaid, he flatly rejected Ryan’s plan to dramatically revise the two programs that consumer a sizable share of the federal budget.
In particular, Ryan wants to scrap the current Medicare system where the government pays doctors and hospitals the health bills for the elderly. Instead, by 2022, Ryan wants the government to provide the elderly with money to buy insurance from private companies.
Ryan also would transform Medicaid by converting the federal share of the program’s financing into a block grant, an approach favored by Gov. John Kasich. The block grant would allow each state to design its own Medicaid systems that could save taxpayer dollars.
But Obama, while praising Ryan for putting forth a plan, castigated his proposed revisions to Medicare. Obama asserted that “instead of guaranteed health care, you will get a voucher. And if that voucher isn’t worth enough to buy insurance, tough luck – you’re on your own. Put simply, it ends Medicare as we know it.’’
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