Obama budget would cut entitlements in exchange for tax increases
By Zachary A. Goldfarb and Karen Tumulty,
President Obama will propose a budget next week that embraces a risky strategy of courting Republicans for a grand bargain on the debt while angering Democratic allies with cuts to the nation’s entitlement programs.
White House officials said Friday that Obama’s budget would cut Medicare and Social Security and ask for less tax revenue than he has previously sought. The budget, to be released Wednesday, will fully incorporate the offer Obama made to House Speaker John A. Boehner (R-Ohio) during December’s “fiscal cliff” talks — which included $1.8 trillion in deficit reduction through spending cuts and tax increases.
On Friday, liberals expressed outrage that a freshly reelected president would concede so much. Some of Obama’s allies said they were concerned that he was making a strategic mistake. Yet the president’s aides said he was intent on showing that he was not backing away from the compromise he had offered.
“The budget reflects his priorities within a budget world that is not ideal,” White House press secretary Jay Carney said. “It requires compromise, negotiation and a willingness to accept that you won’t get 100 percent of what you want.”
The budget will break with the president’s tradition of providing a sweeping vision of his ideal spending priorities, untethered from political realities. But the spirit of compromise did not win Obama much immediate support, as Republicans and Democrats questioned whether it would lead to an agreement.
Boehner accused Obama of holding entitlement cuts “hostage” in an effort to win support for more tax increases, despite warnings from congressional Republicans not to do so.
“That’s no way to lead and move the country forward,” Boehner said.
But some of the most heated commentary came from the left, which was furious that the president was enshrining cuts to Social Security as official administration policy. Obama proposed changing the cost-of-living calculation for Social Security in a way that will reduce benefits for most recipients, a key Republican request that he had earlier embraced only as part of a compromise.
“I am terribly disappointed and will do everything in my power to block President Obama’s proposal to cut benefits for Social Security recipients,” said Sen. Bernard Sanders (I-Vt.), who caucuses with the Democrats. “I remember when Obama said he was concerned about retirees struggling to get by and was unequivocal in his opposition to cutting cost-of-living adjustments.”
Overall, the budget request reflects Obama’s stark shift in strategy over the past 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. 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 for progress not only on the deficit but also on other issues, including immigration and gun control. The White House says the concessions in Obama’s budget should not be viewed as a list of options but rather as a cohesive package.
Obama decided to incorporate the approach he had offered Boehner after a debate among his advisers and allies on Capitol Hill, according to people familiar with the discussions. Some worried that the White House was giving away concessions before Republicans agreed to make some of their own.
“I have some tactical concerns about the White House approach and some substantive concerns,” said Rep. Chris Van Hollen (Md.), the top Democrat on the House Budget Committee and a White House ally in pursuit of a broad budget deal.
“The president has essentially said this is his end point and this is a compromise proposal,” Van Hollen said. “Republicans have rejected this as a compromise. From the Republican perspective, the president’s budget is the starting point for negotiation.”
White House officials say Obama felt that, as president, it was important he stand by his original offer and include it in his budget proposal.
“We want to make clear that it’s something that we’re willing to do. To not put it in [the budget] would be a conversation disconnected with reality,” a senior White House official said. Failing to do so, the official said, would have provoked howls from Republicans that “you moved the goal posts.”
Officials also pointed out that the president’s budget goes beyond the Boehner offer. Obama’s budget would fund several new priorities, including the creation of a program offering preschool to all 4-year-olds from low- and moderate-income backgrounds.
Officials proposed 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-protected 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 president would also seek to scrap a loophole in the law that lets people collect both unemployment insurance and disability payments — so called double-dipping.
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.
Through that pact and earlier agreements, Congress and Obama have 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.
But Obama’s budget proposal 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 $1.6 trillion in new taxes and fewer cuts to health and domestic spending programs. Obama is seeking to raise $580 billion in tax revenue by limiting deductions for the wealthy and closing loopholes for certain industries such as oil and gas.
The budget proposal slices $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 and $100 billion in revenue, a result of the impact of the change on other government programs.
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. With the House and the Senate having passed dueling budget proposals, both sides will see whether they can find a compromise.
Two upcoming debates will provide opportunities. 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 oppose an increase this time. In addition, Congress and the White House will have to agree to a new budget plan at the end of September.
Scott Wilson contributed to this report.