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Tags: Obama | cuts | social | security | medicare

Obama Budget Proposes Cuts to Social Security, Medicare

By    |   Friday, 05 April 2013 07:26 AM

President Barack Obama’s budget plan will incorporate deficit-cutting proposals that include changing the calculation for Social Security cost-of-living increases and tax brackets, according to a White House statement.

The plan, set for release April 10, will track the offer on spending cuts and revenue increases that Obama made to House Speaker John Boehner of Ohio as part of an end-of-the-year deal on expiring tax cuts, according to the statement e-mailed Friday.

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“While this is not the president’s ideal deficit reduction plan, and there are particular proposals in this plan like the CPI change that were key Republican requests and not the president’s preferred approach, this is a compromise proposal” that will be part of the budget, according to the statement.

Obama’s offer to Boehner “still stands,” it said.

“That means that the things like CPI that Republican leaders have pushed hard for will only be accepted if congressional Republicans are willing to do more on revenues,” said the statement. “This isn’t about political horse trading; it’s about reducing the deficit in a balanced way.”

The plan includes a new inflation gauge that would effectively reduce cost-of-living increases for Social Security beneficiaries, a measure that is sure to draw opposition from many Democrats. It also proposes using the calculation for adjusting income tax brackets, which would mean higher payments for many taxpayers.

The New York Times reports the budget also proposes cuts to Medicare.

While Obama’s fifth budget proposal stands little chance of becoming law because of opposition from Republicans who control the House, it emphasizes the president’s priorities and will set the stage for talks with Republicans on a broader debt-reduction package.

For the first time, Obama is adding specific entitlement benefit cuts in his official budget, an attempt to signal to Republicans that he still wants to reach a deal on reducing the deficit.

Republicans have said the president needs to take the lead if there’s any chance to address the biggest long-term driver of the debt, Medicare spending, because Democratic lawmakers have resisted trimming entitlement-program costs.

“I’m in a wait-and-see mode as to whether this White House is very serious,” House Majority Leader Eric Cantor, a Virginia Republican, said Friday on CNBC. “There are some things we can agree on.”

By making the offer to reduce Social Security and other entitlement benefits, Obama is making it clear that Republicans must be willing “to do more on revenues,” the statement said.


By including Obama’s deficit reduction offer in his budget, the White House statement calculated that it would cut the deficit by $1.8 trillion over 10 years.

Including $2.5 trillion in deficit reduction from the year- end budget deal, the administration asserted that the total deficit-reduction package would reach more than $4.3 trillion over 10 years.

In turn, that would trim the deficit to 2.8 percent of Gross Domestic Product by 2016 and 1.7 percent by 2023, putting the U.S. on a fiscally sustainable path with debt declining as a share of the economy, the White House statement said.

The president will also offer new initiatives and ways to pay for them.

In his State of the Union message in February, the president called for a new pre-kindergarten program for four- year-olds nationwide under a federal aid to states arrangement.


This would be paid for by raising taxes on cigarettes and other tobacco products, according to the White House. The amount of the new taxes wasn’t specified.

The budget will call for raising about $9 billion over a decade by prohibiting individuals from accumulating more than $3 million in Individual Retirement Accounts and other tax- retirement instruments. A $3 million limit would be about equal to an annuity of as much as $205,000 a year, according to the White House.

Changing the inflation calculator potentially provides Obama and congressional Republicans with a way to accomplish their goals. Obama is seeking more revenue through tax-code changes, while Republicans are pushing to trim entitlement programs such as Social Security.

The change in calculation would make the annual adjustments smaller than they are now. As a result, more income would be subject to higher income tax rates. The administration in its earlier proposal estimated that would bring in additional tax revenue of about $100 billion over 10 years.


In 2020, the change would raise taxes for 78.3 percent of households by an average of $124, according to the nonpartisan Tax Policy Center in Washington. Taxes would increase for 98 percent of households making between $75,000 and $100,000 a year.

Boehner’s spokesman said House Republicans will resist attempts to raise tax revenue to cut the deficit, which was $1.1 trillion in fiscal 2012.

“The president got his tax hikes already,” the spokesman, Michael Steel, said in an e-mail. “It’s time to deal with Washington’s spending problem, so we can get our economy moving again and create more American jobs.”

Switching to the alternative inflation yardstick for Social Security would save $130 billion, according to the plan Obama offered last year. Obama hasn’t included the changes to Social Security and tax bracket calculations in previous spending blueprints.


The prospect of such a change already is generating opposition.

“Millions of working people, seniors, disabled veterans, those who have lost a loved one in combat, and women will be extremely disappointed if President Obama caves into the long standing Republican effort to cut Social Security,” Vermont Senator Bernie Sanders, an independent who caucuses with Democrats, said in a statement.

Roger Hickey, co-director of Campaign for America’s Future, which opposes the move, said, “It means the White House is continuing to offer up cuts to Social Security and other programs in order to get Republicans to the bargaining table.”

While lawmakers wrangle over the budget, investors have focused on an improving economy. The benchmark Standard & Poor’s 500 Index has risen about 9 percent so far this year. The S&P added 0.4 percent Thursday in New York, rebounding from the previous day’s 1.1 percent retreat from a record.

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The Bloomberg Consumer Comfort Index increased to minus 34.1 in the week ended March 31 from a six-week low of minus 34.4 in the prior period. The comfort readings from January through March were the strongest on average of any first quarter since 2008 as a pickup in hiring and record stock prices helped consumers overcome an increase in the payroll tax.

Even though the president’s budget is more than two months late, because of tax-and-spending-legislation at year’s end known as the “fiscal cliff,” Pat Griffin, former President Bill Clinton’s lobbyist in Congress, said the timing “may be just right.”

“If there’s one more chance this year to ignite this conversation, this would be it,” Griffin said.

That’s because House Republicans and Senate Democrats have passed non-binding budget resolutions that are far apart, and there’s little likelihood they will be reconciled. Obama plans to dine with Senate Republicans the evening of April 10, just hours after his budget plan is released.


The chained CPI was a centerpiece of failed negotiations between Obama and Boehner over a “grand bargain” budget deal in the summer of 2011, and it was also the key tradeoff Obama was willing to make as part of the so-called fiscal cliff negotiations in December in the context of a broad debt- reduction package.

Unlike the consumer price index, chained CPI adjusts for consumers’ tendency to switch products when prices rise. In that way, economists say it is a more accurate measure of the cost of living for purposes of setting tax policy and Social Security benefits. The regular CPI tends to overstate inflation because it doesn’t adjust for consumer behavior, economists say.

A concern for Democrats is whether a change can be made in a way that would protect low-income and other vulnerable groups of senior citizens. Obama’s 2010 debt commission recommended instituting a flat-dollar benefit “bump-up” for Social Security recipients who have been receiving benefits for 20 years, and a minimum benefit for lower-income beneficiaries.

Another major concern for Democrats and Republicans will be protecting disabled veterans. That could be addressed by enhancing Social Security disability benefits or increasing certain credits for low-income taxpayers.

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President Barack Obama’s budget plan will incorporate deficit-cutting proposals that include changing the calculation for Social Security cost-of-living increases and tax brackets. The New York Times reports the budget also proposes cuts to Medicare.
Friday, 05 April 2013 07:26 AM
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