Liberal groups blast Obama pay-freeze proposal, release alternative plan

The representatives argued that federal pay has lagged private-sector pay and the reduction announced by Obama today would exacerbate the difference.

EPI, Demos and The Century Foundation today released their own plan for reducing the deficit, titled “Investing in American’s Economy,” which they said reduces the deficit to a “sustainable” level while protecting economic growth and entitlement benefits.

In contrast to the plan proposed by the chairmen of the president’s deficit commission, the liberal groups’ plan focuses more heavily on raising revenue.

The deficit commission draft proposal relied on 75 percent spending cuts compared to 25 percent in revenue increases. Irons said the EPI-Demos-Century Foundation plan relies on about one-third spending cuts, one-third revenue increases and one-third reductions in tax expenditures such as tax credits.

The plan also proposed short-term stimulus spending in order to bolster the recovery, to the tune of $250 billion in 2011 and $200 billion in 2012.  This spending would be focused on early childhood development, transportation infrastructure, expanding rural access to broadband, bolstering healthcare information technology and research, and development spending, Draut explained.

Irons said that while the deficit commission proposal would bring spending down to 21 percent of gross domestic product, the liberal groups plan would bring it down to only to 25 percent by 2020, while raising revenue to 21.7 percent of GDP.

To get spending down, the liberal plan would cut defense spending by $960 billion over 10 years.

Regarding long-term entitlement programs, Anrig pointed out that the groups estimate significant savings in cost due to the Obama healthcare reform bill in later years.

“We reject arbitrary caps on Medicare or Medicaid spending,” he said.

To make Social Security solvent, the liberal groups' plan would raise taxes but would not reduce benefits.

To raise revenue, the groups propose a carbon cap-and-trade scheme or carbon tax, a surcharge on millionaires, closing foreign tax loopholes, and limiting the value of tax deductions for higher earners.

Asked about whether it is responsible to maintain relatively high social spending, Irons said that recovery will be crucial to meeting the deficit reduction goals in the long term and that the drive for immediate austerity is not based on fact. 

“We are not a Greece, we are not an Ireland, we are not a Portugal,” he said referring to several European economies that have faced debt crises recently.