Earlier today, President Obama released a new plan for reducing the federal deficit, or the shortfall between revenues and spending. The plan is technically a set of recommendations for the Super Committee, which Congress created last month to find $1.2 trillion in deficit reduction. Obama’s plan isn’t ideal, but it is easily one of the best set of deficit reduction recommendations to come out of Washington in a while.

The recommendations' provisions cut about $3.1 trillion from the deficit over ten years, broken down as follows:

• $1.5 trillion in savings from tax reform (ending the upper-income Bush tax cuts and closing corporate loopholes)
• $1.1 trillion from the drawdown of troops in Iraq and Afghanistan
• $430 billion in lower debt servicing costs
• $320 billion in cuts to Medicaid and Medicare
• $250 billion from ending waste, selling government assets, ending certain subsidies, and reforming federal employee benefit programs

(Descriptions of the plan’s specific elements can be found here)

The plan also includes tax cuts and new spending, in the form of the recently released American Jobs Act (AJA), Obama’s "please-don’t-call-it-stimulus" stimulus bill worth $447 billion over the next two years. With the AJA attached, the recommendations are roughly in line with Congressional Budget Office (CBO) Director Doug Elmendorf's recent advice to the Super Committee on how to help the economy, which is essentially "spend now, pay for it later." According to the administration’s estimates, the jobs bill will help offset some of the damage the recent debt ceiling deal budget cuts will have on the economy and add some $300 billion to next year’s deficit. However, it will be paid for in later years with the tax increases, war savings, etc.

Notably, the best “deficit reduction” plan is still simply doing nothing. If Congress fails to act, at the end of next year, all the Bush tax cuts end, the Alternative Minimum Tax collects more revenue, and Medicare doctors take a pay cut (not that we necessarily support any of this happening). Collectively, these changes will save almost $5 trillion over ten years, making it a stellar deficit reduction plan (although we’re still not at a balanced budget, since there would still be a $4 trillion hole in the budget over the next ten years).

Outside of the military drawdown, the single largest spending cut comes from health care. The president’s plan would cut $320 billion from Medicare ($248 billion) and Medicaid ($72 billion), with heavy emphasis on cutting drug costs; reducing waste, fraud, and abuse; and realigning incentives for providers to provide higher quality care. Notably absent from the plan is a recommendation to increase the Medicare eligibility age. Additionally, the president has pledged to veto any bill that would cut Medicare "without asking the wealthiest Americans and biggest corporations to pay their fair share."

The president’s proposal is far more progressive than anything that is likely to come out of the Super Committee, which is due to report to Congress by Thanksgiving. Many of the Republicans on the committee are staunchly opposed to increasing taxes, so any committee report will likely include large entitlement cuts offset by small, if any, tax increases. And, if the committee fails to produce a report, the debt ceiling deal automatically triggers cuts worth another trillion dollars from the federal budget.

As Washington Post blogger Ezra Klein points out, the plan should be more accurately seen as an opening in the next round of grand bargaining. No one, not even the administration, thinks this plan is going to be passed as-is. Instead, it sets out the starting positions, from which the Democrats and Republicans will negotiate. And in that sense, the new deficit reduction plan falls short of progressives' goals to significantly expand spending to boost job growth, adequately fund public protections, and increase investments in the nation's infrastructure and people. Instead, the plan pairs relatively moderate tax increases with small entitlement cuts, on top of the $1 trillion Congress already agreed to cut out of discretionary spending through the debt ceiling deal. But Obama’s plan, with its threat of a veto if the Super Committee cuts Medicare without raising upper-income and corporate taxes, is clearly preferable to both the Super Committee and the trigger.

Image by Flickr user Barack Obama used under a Creative Commons license.