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Obama’s Deficit Plan Sets Up a Battle With GOP on Medicare, Medicaid Cuts

More taxes on the wealthy, more cuts in defense

“There has never been so much sustained concern about the fiscal future of our country,” says Michael Franc, vice president of government studies at the Heritage Foundation. “It’s a sense we are on a precipice as a nation.”

Obama’s plan — a do-over just two months after he submitted an annual budget with less deficit relief — includes more taxes on the rich and cuts to defense programs than what Republicans support.

Ryan said Wednesday that he was disappointed with Obama’s plan, which he called partisan and inadequate.

“When the president reached out to ask us to attend his speech, we were expecting an olive branch,” Ryan said. “What we heard today was not fiscal leadership from our commander in chief; we heard a political broadside from our campaigner in chief.”

Republicans have focused their deficit reduction on domestic spending cuts, including $38.5 billion for the current year that will come to a vote Thursday in the House. Budget expert Stanley Collender, a partner at Qorvis Communications, says the fight over those cuts, which pushed the nation to the brink of a shutdown, will “look like a romantic comedy” compared with the looming battle over the Ryan and Obama budget plans.

Republicans wasted no time criticizing the president for wanting to roll back tax cuts for the wealthy.

“Outside of Washington, it’s obvious that the problem isn’t that people are under-taxed, but that Washington over spends,” said Sen. Chuck Grassley, R-Iowa. “They said so loud and clear in the last election.”

Obama vowed to refuse to extend Bush-era tax cuts for families earning more than $250,000 a year. Republicans argue that the country can ill-afford to raise taxes on people who create jobs. But the Gang of Six is likely to press for a compromise that lowers tax rates for income and corporate taxes in exchange for getting rid of many loopholes.

Obama’s plan would set up automatic cuts to both tax loopholes and spending programs if Congress doesn’t enact enough deficit reduction.

The tax issue and changes to retirement programs like Medicare are likely to be centerpieces of next year’s presidential and congressional elections. Ryan’s approach was to give future seniors aid to buy insurance. But the Congressional Budget Office has estimated that will leave seniors with more than $6,000 a year in extra costs compared with the current Medicare system.

Next: How is Obama's plan different? >>

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