Obama Budget to Include Cuts to Medicare and Social Security

By Jackie Calmes, The New York Times

05 April 13

resident Obama next week will take the political risk of formally proposing cuts to Social Security and Medicare in his annual budget in an effort to demonstrate his willingness to compromise with Republicans and revive prospects for a long-term deficit-reduction deal, administration officials say.

In a significant shift in fiscal strategy, Mr. Obama on Wednesday will send a budget plan to Capitol Hill that departs from the usual presidential wish list that Republicans typically declare dead on arrival. Instead it will embody the final compromise offer that he made to Speaker John A. Boehner late last year, before Mr. Boehner abandoned negotiations in opposition to the president's demand for higher taxes from wealthy individuals and some corporations.

Congressional Republicans have dug in against any new tax revenues after higher taxes for the affluent were approved at the start of the year. The administration's hope is to create cracks in Republicans' antitax resistance, especially in the Senate, as constituents complain about the across-the-board cuts in military and domestic programs that took effect March 1.

Mr. Obama's proposed deficit reduction would replace those cuts. And if Republicans continue to resist the president, the White House believes that most Americans will blame them for the fiscal paralysis.

Besides the tax increases that most Republicans continue to oppose, Mr. Obama's budget will propose a new inflation formula that would have the effect of reducing cost-of-living payments for Social Security benefits, though with financial protections for low-income and very old beneficiaries, administration officials said. The idea, known as chained C.P.I., has infuriated some Democrats and advocacy groups to Mr. Obama's left, and they have already mobilized in opposition.

As Mr. Obama has before, his budget documents will emphasize that he would support the cost-of-living change, as well as other reductions that Republicans have called for in the popular programs for older Americans, only if Republicans agree to additional taxes on the wealthy and infrastructure investments that the president called for in last year's offer to Mr. Boehner.

Mr. Obama will propose other spending and tax credit initiatives, including aid for states to make free prekindergarten education available nationwide - a priority outlined in his State of the Union address in February. He will propose to pay for it by raising federal taxes on cigarettes and other tobacco products.

"The president has made clear that he is willing to compromise and do tough things to reduce the deficits, 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," said a senior administration official, who, like others, declined to be identified confirming details about the coming budget.

"That means," the official added, "that the things like C.P.I. that Republican leaders have pushed hard for will only be accepted if Congressional Republicans are willing to do more on revenues."

But just this week, Representative Eric Cantor, Republican of Virginia, the House majority leader, reiterated the party's antitax stance and called for reducing spending by cutting waste and making changes in federal programs. The growth in the so-called entitlement programs, especially for health care, is a main driver behind projections of mounting federal debt as baby boomers age and medical costs rise.

Mr. Obama's budget was due in February but administration officials said it was delayed by the year-end fiscal negotiations and resulting tax changes. It will arrive on Capitol Hill hours before the president dines on Wednesday evening with a dozen Senate Republicans - his second such parlay in recent weeks.

While the group is likely to also discuss gun-safety and immigration legislation, the timing of Mr. Obama's budget release is all but certain to make it a prime topic.

Some Senate Republicans have been urging the president to speak out more to Americans about his ideas for reducing the growth of entitlement programs. While the White House posted the offer to Mr. Boehner on its Web site this year, aides previously said that Mr. Obama would not include its provisions in his official budget documents. To do so, some said, would expose him to Democrats' criticism that he is too quick to compromise and allow Republicans to embrace the proposals for spending cuts, in particular the C.P.I., but ignore those for tax increases.

Neither the president nor senior aides privately hold much hope that Republican leaders - Mr. Boehner and Senator Mitch McConnell of Kentucky, the Senate Republican leader - will compromise. So Mr. Obama's strategy of reaching out to other Senate Republicans reflects a calculation that enough of them might cut a budget deal with the Democratic Senate majority. If that happens, the reasoning goes, a Senate-passed compromise would put pressure on the House to go along.

According to administration officials, the president's budget plan would reduce projected annual deficits by $1.8 trillion over 10 years, even with the select spending increases. To offset the initiatives' cost and avoid adding to deficits, Mr. Obama will propose the tobacco tax increase, a limit of $3 million on how much people can accumulate in tax-preferred savings accounts and repeal of a loophole that allows people to collect both disability and unemployment benefits.

Together with the $2.5 trillion in deficit reductions that Mr. Obama and Congressional Republicans have agreed to since 2010, that would bring the total deficit reduction to more than $4.3 trillion over 10 years by the administration's computations - just over the goal that both parties have set for stabilizing the growth of the national debt.

The deficit, which for this fiscal year is expected to be equal to 5.5 percent of the size of the economy, as measured by the gross domestic product, would decline to 1.7 percent by 2023, according to officials.

Of the more than $2.5 trillion to date in projected 10-year budget savings, nearly 80 percent would result from spending cuts. The rest would derive from tax increases on high incomes that became law on Jan. 1, in the tax agreement that the two parties reached at year-end when the efforts for a broader deficit-reduction deal collapsed.

Mr. Obama's proposals to reduce deficits $1.8 trillion more over a decade track his offer to Mr. Boehner, adjusted for the roughly $600 billion in higher taxes that became law in January. He will propose more than $600 billion in new revenues - his last offer had called for $1.2 trillion in taxes - mostly by limiting to 28 percent the deductions that individuals in higher tax brackets can claim. Congress has ignored that idea in past years.

Deficits would be reduced another $930 billion through 2023 as a result of spending cuts and other cost-saving changes to domestic programs, and $200 billion more due to reduced interest payments on the federal debt.

Mr. Obama's proposed spending reductions include about $400 billion from health programs and $200 billion from other areas, including farm subsidies, federal employee retirement programs, the Postal Service and the unemployment compensation system.

In Medicare, the savings would mostly come from payments to health care providers, including hospitals and pharmaceutical companies, but Mr. Obama also proposes that higher-income beneficiaries pay more for coverage.