Obama Cuts Medicare, Social Security for More Taxes
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Obama Cuts Medicare, Social Security for More Taxes

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President Obama will release a budget next week that proposes significant cuts to Medicare and Social Security and fewer tax hikes than in the past, a conciliatory approach that he hopes will convince Republicans to sign onto a grand bargain that would curb government borrowing and replace deep spending cuts that took effect March 1.

When he unveils the budget on Wednesday, Obama will break with the tradition of providing a sweeping vision of his ideal spending priorities, untethered from political realities. Instead, the document will incorporate the compromise offer Obama made to House Speaker John Boehner (R-Ohio) last December in the discussions over the so-called “fiscal cliff” – which included $1.8 trillion in deficit reduction through spending cuts and tax increases.

“The president has made clear that he is willing to compromise and do tough things to reduce the deficit,” a senior administration official said, “but only in the context of a package like this one that has balance and includes revenues from the wealthiest Americans and that is designed to promote economic growth.”

While Republicans are certain to be skeptical of Obama’s call for more taxes, the president also is likely to face immediate heat over his budget proposal from some Democrats and liberal supporters. Obama proposes, for instance, to change the cost-of-living calculation for Social Security in a way that will reduce benefits for most beneficiaries, a key Republican request that he had earlier embraced only as part of a compromise. Many Democrats say they are opposed to any Social Security cuts and are likely to be furious that such cuts are now being proposed as official administration policy.

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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 [cost-of-living] change that were key Republican requests and not the president’s preferred approach,” the senior administration official said, “this is a compromise proposal built on common ground, and the president felt it was important to make it clear that the offer still stands.”

Overall, the budget request reflects Obama’s stark shift in strategy over the last month, as he has adopted a far more congenial posture toward the opposition. He has begun a charm offensive reaching out to rank-and-file House and Senate Republicans, dining and speaking privately with them in hopes they will take seriously his offer to overhaul entitlement programs in exchange for increasing tax revenues. Obama is set to have dinner with a group of Republicans on Wednesday night, just hours after his budget is released.

Obama’s aides have not been overly optimistic about the prospects for a deal. But they now argue that a strategy of private outreach, coupled with public events, offers the best path forward for progress not only on the deficit but also on other issues, including immigration and gun control.

While the White House is portraying the budget proposal as a compromise, many Republicans are likely to say that it is simply rehashing an offer previously made by the president and rejected because it raises taxes.

They are also likely to focus on the fact that, unlike the Republican budget that passed the House last month, Obama’s budget does not balance within 10 years. The GOP has made the failure to balance the budget a key talking point in recent weeks.

Obama’s budget, for the fiscal year starting Oct. 1, would fund several new priorities, including the creation of a new program offering preschool to all four-year-olds from low- and moderate-income backgrounds and a significant new investment in brain research. Officials propose an increase in tobacco taxes to pay for the early childhood education initiative and would also seek to generate revenue by limiting how much wealthy individuals can accrue in their tax-retirement accounts. Such accounts would be capped at $3 million in 2013 dollars – which officials say is enough to finance a $205,000 a year income.

The budget request comes on top of a deal struck at the start of the year to raise taxes on the wealthy by more than $600 billion over a decade — mainly by returning to Clinton-era rates for households earning over $450,000 annually.

Through that pact and earlier agreements, Congress and Obama have already agreed to reduce the annual budget deficit – how much more the government spends than it collects — by $2.5 trillion over the next decade. If left in place, the deep spending cuts that took effect March 1, known as sequestration, would reduce the deficit by an additional $1.2 trillion over the same period. That would be just about enough to keep deficits from rising and to stabilize the debt, as measured as a percentage of the overall economy.

Obama’s budget proposal, however, would eliminate sequestration and replace it with a variety of other deficit reduction measures, together worth $1.8 trillion, according to White House estimates. The deficit, which is projected this year to be equal to 5.5 percent of the size of the economy, would shrink to 1.7 percent of the economy by 2023. By comparison, the House Republican budget — which would curtail spending on dozens of programs for the poor, repeal Obama’s health-care law and partially privatize Medicare for people now younger than 55 — aims to eliminate the deficit by 2023. A more liberal plan passed by Senate Democrats would make the deficit 2.2 percent of the size of the economy by that point.

The budget is more conservative than Obama’s earlier proposals, which called for $1.5 trillion in new taxes and fewer cuts to health and domestic spending programs. Obama is seeking to raise $580 billion in tax revenues by limiting deductions for the wealthy and closing loopholes for certain industries like oil and gas.

The budget would also slice $200 billion from already tight defense and domestic budgets. It would cut $400 billion from Medicare and other health programs by negotiating better prescription drug prices and asking wealthy seniors to pay more, among other policies. It would also generate $200 billion in savings by scaling back farm subsidies and federal retiree programs, among other proposals.

The proposal to change the formula to calculate Social Security payments, also originally part of the offer to Boehner, would generate $130 billion in savings. That proposal is likely to generate the greatest outcry from the Obama administration’s traditional allies.

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“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 longstanding Republican effort to cut Social Security,” Sen. Bernard Sanders (I-Vt.), who caucuses with Democrats, said earlier this week, after reports surfaced that Obama might include the change in his budget. “In 2008, candidate Barack Obama told the American people that he would not cut Social Security. Having him go back on his word will only add to the rampant political cynicism that our country is experiencing today.”

Obama is submitting his budget two months late, after aides scrambled to deal with the end-of-year “fiscal cliff” and then the March 1 deadline for sequestration. Obama signed into law late last month a measure that funds the government through the end of the fiscal year in September – locking the sequester cuts into effect for the time being.

Two upcoming debates will provide an opportunity to turn off those cuts and revisit Obama’s budget offer. This summer Congress will once again be forced to raise the federal debt ceiling or risk a default on the national debt. Republicans in February decided not to mount a fight over the debt ceiling as they had in 2011, and it is not yet clear whether they will this time. In addition, Congress and the White House will have to agree to a new budget plan at the end of September.

Although it is conciliatory, the White House argued that Obama’s budget should not be seen as list of options that Republicans can choose from. It made clear that the GOP must accept nearly the entire offer of tax hikes for spending cuts in order to strike a deal.

“This isn’t about political horse-trading; it’s about reducing the deficit in a balanced way that economists say is best for the economy and job creation,” the senior administration official said. “That’s why the president’s offer – which will be reflected in his budget — isn’t a menu of options for them to choose from. It’s a cohesive package that reflects the kind of compromise we should be able to reach.”

This article originally appeared in The Washington Post.

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