Obama unveils $3 trillion in debt cuts

President Obama threatened to veto any debt reduction legislation that cuts benefits and doesn't include higher taxes on the wealthy.

NEW YORK (CNNMoney) -- President Obama unveiled a plan on Monday to cut the national debt by roughly $3 trillion over the next decade.

Obama's plan reflects his vision for how best to put the country on a more fiscally sustainable course, so it is different in nature than the kind of legislative compromise he was trying to broker this summer during the debt-ceiling debate, a senior administration official said.

A driving principle behind the proposal is that high-income individuals and corporations should pay more in taxes than they do currently so that they will bear some of the burden of debt reduction going forward.

Indeed, in remarks on Monday morning, the president threatened to veto any debt-reduction legislation that cuts benefits and doesn't include higher taxes on the wealthy. "I will not support any plan that puts all the burden on ordinary Americans," he said.

Obama even introduced the "Buffett Rule" for millionaires -- named after investor Warren Buffett, who has frequently argued that the very rich are not taxed enough.

The president's debt reduction proposal is likely to placate -- at least a little -- those in his Democratic base who have been adamant that they want the rich to pay more and they don't want Medicare or Social Security benefits hit. (Read: National debt: What you need to know)

The White House said last week the president's plan will not include any Social Security reform proposals. And another senior administration official noted Sunday that the plan does not call for raising the Medicare eligibility age, which fiscal experts have recommended.

But the Obama plan has already drawn criticism from Republicans, who have been adamant about not wanting to raise anyone's taxes. (Read: Where left and right actually agree)

The plan Obama released includes some $3 trillion in savings on top of the nearly $1 trillion already signed into law under the debt ceiling deal enacted in August.

Of that, however, close to $500 billion would have to be used to pay for the American Jobs Act, which Obama proposed last week. And a third of the savings he proposes would come from expected war savings. (Read: Cutting now could hurt economy, CBO says)

All told, the White House estimates the president's plan would reduce debt to 73% of the size of the economy by 2021, well below the nearly 91% it's on track to hit without any budgetary changes. It also estimates the annual deficit that year would fall to 2.3% of GDP, down from the 5.5% currently projected.

Initial response to the president's plan from fiscal experts was decidedly mixed. The nonpartisan Committee for a Responsible Federal Budget praised it for some of its proposals, but criticized it for doing too little to control health care costs among other things.

"We are pleased that the president has embraced the goal of achieving at least $4 trillion in deficit reduction and stabilizing the debt. Unfortunately, he relies on the budget gimmick of counting the war drawdown to inflate his savings and would leave the debt at an unacceptably high level," said CRFB President Maya MacGuineas.

Here's how Obama's proposed savings break down.

Mandatory spending cuts: $580 billion.

Of the total cuts in mandatory spending, $248 billion will come out of Medicare. And about 90% of those savings will come from reducing overpayments in the system, a senior administration official said. He added that any changes to Medicare benefits won't kick in before 2017.

Another $72 billion will come from Medicaid and other health programs.

The plan also includes $250 billion in savings from other mandatory programs. They include $33 billion in savings from farm subsidies; $42.5 billion from federal worker benefit programs, including those for civilian workers and military personnel; and $92.2 billion the administration estimates it can save from "restructuring government operations and reducing government liabilities."

Tax revenue: $1.5 trillion.

Of the total revenue raised by tax changes, $800 billion would be realized by letting some of the Bush-era tax cuts expire for high-income households -- something Obama has called for repeatedly.

Another $400 billion would result from capping the value of itemized deductions and other exemptions for high-income households.

The remaining $300 billion would come from closing various tax loopholes, a senior administration official said.

In addition, the president offered guiding principles for future tax reform.

Any reform plan, he said, should lower tax rates, eliminate wasteful loopholes, boost job creation and economic growth, and be consistent with the Buffett Rule.

Typically, the wealthiest Americans derive a lot of income from investments, which are often taxed at a lower rate than ordinary income such as wages. As a result, they can end up owing a lower percentage of their income in federal taxes than someone who makes far less money, especially once payroll taxes are factored in.

The concept of the Buffett Rule is that those earning more than $1 million should not be allowed to pay a lesser percent of their income in federal taxes than Americans lower down the income scale.

War savings: $1.1 trillion.

The administration is counting the reduction in spending in Iraq and Afghanistan over the next decade that will result from the planned drawdown of troops and the changing nature of the operations in those countries.

In addition, the administration is counting savings that would result from spending caps it has proposed on future overseas contingency operations.

Interest savings: $430 billion.

Whenever policies are changed to lower future deficits, those deficits are reduced in part because of the interest costs that will be saved from less borrowing.

Are you a millionaire? How do you feel about paying higher taxes? Whether you're opposed to the "Buffett Rule" or you think it's only fair, e-mail blake.ellis@turner.com for the chance to be included in an upcoming article on CNNMoney.com.