Obama releases a budget plan with a simple goal: Ending the debt standoff

President Obama urged Republican lawmakers to meet him “halfway” on the deficit during a speech on his 2014 budget proposal in White House Rose Garden on Wednesday. (The Washington Post)

In the first budget of his second term, President Obama set aside the grand ambitions that marked his early days in office and sent Congress a blueprint aimed at achieving a simple goal: ending the long partisan standoff over the national debt.

The 10-year budget request Obama unveiled Wednesday calls for nearly $300 billion in new spending on jobs and public works. That includes a landmark $77 billion expansion of preschool education financed by smokers, who would have to pay an extra 94 cents a pack for cigarettes.

But barely five months after winning a decisive reelection victory, Obama proposes nothing on the scale of the $1.2 trillion initiative to extend health coverage to the uninsured that he pursued after taking office in 2009.

Instead, with sharp automatic spending cuts threatening to slow the economic recovery and another showdown over the federal debt limit looming this year, the blueprint establishes a budget deal with Republicans as Obama’s top fiscal priority. For the first time, he is formally proposing to trim scheduled Social Security benefits — a GOP demand that is anathema to many Democrats. He is also offering to make meaningful reductions in Medicare benefits, including higher premiums for couples making more than $170,000 a year.

“With this budget, you can’t say the president isn’t leading. He’s clearly leading,” said Robert Greenstein, president of the left-leaning Center on Budget and Policy Priorities. “Whether one agrees or disagrees with the specific policies, he has definitely stepped up to the plate to try to break the gridlock.”

House Republicans and Senate Minority Leader Mitch McConnell (R-Ky.) quickly dismissed the proposal, which formalizes an offer they rejected in December. McConnell called the cuts to Social Security and Medicare too “modest” to justify Obama’s bottom-line demand for nearly $700 billion in new taxes on the wealthy, primarily through new limits on itemized deductions for households in the top brackets.

“I don’t see this as fundamental entitlement reform as much as clarifying a statistic which does happen to save money,” House Budget Committee Chairman Paul Ryan (R-Wis.) said of Obama’s offer to apply a less generous measure of inflation — known as the chained consumer price index, or chained CPI — to Social Security benefits.

Some rank-and-file Republicans in the Senate were more complimentary. Sen. Johnny Isakson (R-Ga.) said Obama is “talking about Medicare reform, he’s talking about entitlement reform, and it will be interesting to see where the conversation goes.”

Isakson and other GOP senators were scheduled to join Obama for dinner at the White House on Wednesday. With McConnell and House Speaker John A. Boehner (R-Ohio) showing no interest in further talks, administration officials see Senate Republicans as their best hope for advancing a bipartisan agreement.

Obama warned during remarks in the Rose Garden on Wednesday that the budget represents his bottom-line offer. Any deal, he said, must not only replace “the foolish across-the-board spending cuts,” known as the sequester, that are “already hurting our economy” but also raise revenue from “the wealthiest individuals and biggest corporations.”

Of the entitlement cuts, Obama said, “I don’t believe that all these ideas are optimal, but I’m willing to accept them as part of a compromise.” He added: “When it comes to deficit reduction, I’ve already met Republicans more than halfway. So in the coming days and weeks, I hope that Republicans will come forward and demonstrate that they’re really as serious about the deficits and debt as they claim to be.”

Though presidents have for nearly a century launched the budget process, Obama’s request for the fiscal year that begins in October arrived on Capitol Hill 65 days late, weeks after the House and Senate had each adopted its own spending blueprint.

See how debt, deficit and different types of spending are affected by President Obama’s budget, and how it compares to competing plans.

In the House, Ryan’s plan seeks to balance the budget over the next decade without new taxes, in part by keeping the sequester in place, repealing Obama’s health-care initiative, and making unprecedented cuts to Medicaid and other programs for the poor.

In the Senate, Budget Committee Chairman Patty Murray (D-Wash.) won narrow approval for a competing spending plan that would replace the $1.2 trillion sequester in part with nearly $1 trillion in new taxes.

Neither proposal would trim Social Security benefits. And though Ryan proposes to replace Medicare with a cheaper system known as “premium support,” Obama’s budget offers slightly larger Medicare savings in the near term.

The president’s debt-reduction proposal mirrors an offer he made to Boehner in negotiations over the “fiscal cliff.”

At the time, Obama called for $1.2 trillion in new taxes. He ultimately won about $600 billion, with the bulk of the money coming from higher rates on households earning more than $450,000 a year.

Now Obama is proposing to pick up where he left off, replacing the sequester with $1.8 trillion in alternative policies that were left on the table. In addition to higher taxes on the wealthy — including a new minimum tax rate of 30 percent on households earning more than $1 million a year — the package calls for replacing the sequester’s indiscriminate cuts to the Pentagon and other agency budgets with the sort of long-lasting entitlement changes that Republicans have long demanded.

That includes nearly $400 billion from federal health programs, primarily Medicare, with the bulk of the cuts falling on drug companies and other providers. But Medicare beneficiaries would also take a hit, through higher premiums and requirements to substitute generic drugs for more expensive brand names.

Obama also proposes to slow the growth of Social Security benefits through chained CPI, trimming cost-of-living increases by roughly three-tenths of a percentage point a year and saving the government about $130 billion over the next decade.

White House officials said the change would not affect programs for the poor, such as Supplemental Security Income, or SSI, and would be adjusted to reduce the impact on retirees 77 or older. Still, the proposal has infuriated many Democrats, who have long demanded that Social Security be protected from any debt-reduction deal.

Combined with budget deals enacted as part of the 2011 debt-limit fight, the fiscal-cliff talks and other agreements, Obama’s new proposal would reduce borrowing by a projected $4.3 trillion over the next decade — close to the sum recommended by independent budget analysts. That includes roughly $660 billion in new savings on top of the sequester, administration officials said.

For the coming fiscal year, the blueprint proposes to spend $3.78 trillion and projects a deficit of $744 billion, or 4.4 percent of the nation’s gross domestic product. That’s down from the $973 billion deficit the White House projects for the current fiscal year and heralds an end to the era of record deficits in excess of $1 trillion that ramped up the national debt during and after the recent recession.

White House projections show the budget gap narrowing steadily over the coming decade, shrinking to $439 billion in 2023, or 1.7 percent of GDP. The national debt, meanwhile, would continue to grow to $25 trillion from today’s $16.8 trillion. It would be slowly shrinking when measured against a growing economy but would remain at historically high levels throughout the next decade.

Obama’s budget request — the fifth of his presidency — proposes a range of other initiatives. His written message to Congress calls a growing economy the “North Star that guides our efforts,” and his budget seeks $100 billion in new cash for roads and railways, $1 billion for 15 new institutes to promote innovation in manufacturing and $8 billion to help community colleges prepare students for existing jobs.

Obama also seeks hundreds of billions of dollars in new revenue, including a $3 million cap on the value of individual retirement accounts and an increase in the estate tax after 2018.

Administration officials emphasized that those proposals are separate from their offer for a debt-reduction compromise, which remains the top priority.

Aaron C. Davis and William Branigin contributed to this report.

Lori Montgomery covers U.S. economic policy and the federal budget, focusing on efforts to tame the national debt.
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