Obama’s $4 trillion Grand Bargain

July 7, 2011

The president says it’s time to go big (via Reuters):

After weeks of impasse, President Barack Obama and top congressional leaders are aiming for “something big” as they resume budget talks on Thursday to avert an imminent default. With Republicans showing new flexibility on taxes, Democrats say Obama will push negotiators to double their target to $4 trillion in budget savings over 10 years. That would be an ambitious goal, but there have been a few hints of progress since talks hit a brick wall two weeks ago.

1) If Obama wants a $4 trillion debt reduction package, how about the one his own debt commission produced last December:

 

2) But I don’t think Obama will agree to  or propose anything as sweeping as that. Instead, I would expect more than $1 trillion in savings from defense cuts, most of which will be tweaking the baseline of projected spending, which assumed perpetual war in Iraq and Afghanistan. Along with interest savings, that would be put you right around $2 trillion. Republicans may be offering $200 billion in new revenue from user fees and asset sales.

3) So how to close the remaining gap of roughly $2 trillion? Maybe another $400 billion in Medicare and Medicare savings.  And tweaks in how you measure inflation for Social Security benefits and tax brackets gets you another $150 billion, assuming Rs don’t view that as a tax hike.  And in his April speech, Obama called for $770 billion in non-security discretionary spending cuts over 12 years. To me, it still looks close to $1 trillion gap.

4) And recall that Obama’s debt speech which called for $4 trillion in debt cuts over 12 years would actually cut debt by just $2.5 trillion over ten years.

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