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The Hidden Flaw in Obama's and Boehner's Cliff Plans


Crunching the numbers in each plan.

With the endless coverage of all the political and economic drama over the fiscal cliff, one important fact seems to be missing: Both plans -- President Obama's and House Speaker John Boehner's – fall short of meeting the generally agreed upon goal of reducing the debt by $4 trillion over the coming decade. That's according to a new analysis by Steven Rattner, a private equity investor and the former auto industry advisor to the Treasury Department. Rattner's work shows that even factoring in the $1 trillion of savings agreed to a year ago, Obama's plan would achieve only $3.4 trillion of deficit reduction between 2013 and 2022, while Boehner's House GOP approach would save $3.6 trillion.

Those shortfalls highlight the heart of the dispute between the White House and congressional Republican leaders: Obama wants to achieve nearly half the long-term savings by raising taxes by $1.6 trillion, but only 17 percent of the savings through reductions in Medicare and other entitlement programs. By contrast, roughly a third of the GOP savings would come from entitlement reforms but only 22 percent by boosting revenues by $800 billion, according to Rattner's analysis.

In short, the Democrats would have to agree to tougher measures to slow the growth of entitlements and the Republicans would have to go along with more in taxes – perhaps as much as $1.2 trillion – to hit the long-term deficit reduction target. That would result in a deal with a 2.5 to 1 ratio of spending cuts to revenue increases, which many centrist groups and fiscal commissions contend is the proper balance.

"You could easily see a compromise if you increase the amount of revenue relative to the Boehner plan and you increase a little of the spending cuts relative to the Obama plan and you end up at $4 trillion," Rattner told The Fiscal Times in an interview today. "But that's not always the way negotiations progress."

After four years of trillion-dollar-plus deficits, the government's debt-to-GDP ratio has climbed from 36 percent in 2007 to 73 percent. If nothing is done, that ratio would soar to 90 percent by 2022. It would take at least $4 trillion of revenue increases and spending reductions over the coming decade to get the ratio down to roughly 68 percent, or where it was a year ago.
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