Obama to offer Social Security cuts in new budget -- in exchange for tax hikes

No wonder it’s taking so long for Barack Obama to send his budget proposal to Congress.  The budget is almost two months overdue, but Republicans may find it worth the wait.  The Washington Post reports that Obama will offer cuts to Social Security in exchange for tax hikes to close the deficit — in effect, the grand bargain he and John Boehner nearly made two years ago:

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. …

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 areopposed to any Social Security cuts and are likely to be furious that such cuts are now being proposed as official administration policy.

“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.”

Strictly from a political standpoint, the public offer is surprising, almost shocking.  Without a doubt, Democrats in the 2014 cycle would have used the senior-scaring tactics of the last decade or more when it comes to Republican demands for entitlement reform and deficit control.  Most of those efforts have focused on Medicare and its greater threat to the nation’s fiscal health.  When Paul Ryan offered two budgets to turn Medicare into an exchange program not dissimilar to ObamaCare for the rest of the nation, Democrats ran ads that pictured a Ryan stand-in pushing Grandma over a cliff.

That strategy is useless now that Obama has essentially endorsed entitlement reform, and proposed his own Social Security cuts — and also to Medicare, as the Post notes deeper in the piece:

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 formula change on other government programs. But it is the change in Social Security payments to most recipients that is likely to generate the greatest outcry from the Obama administration’s traditional allies.

The change in Social Security actually is more modest than in Medicare. The former appears to be the adoption of chained CPI to calculate increases in payments, which will result in lower increases rather than cuts, which means that the savings are based on future projections rather than current rates of expenditures.  The cuts to Medicare look like actual cuts, and perhaps even more significant, use means testing to generate revenues, a strategy that both parties have avoided in order to maintain the illusion that Medicare (and Social Security, which acts as a qualifier) aren’t welfare programs.

This proposal puts both parties on the political hook for proposing entitlement cuts and higher fees.  A good entitlement reform package might be worth a trade for tax hikes, although comprehensive tax reform would be a better idea, which this proposal nibbles at but doesn’t deliver.  Unfortunately, while the SSA reform on chained CPI is a good idea, the Medicare reform goes in the wrong direction — or at least in an ineffective direction.  Ryan’s strategy to introduce choice in the form of public/private exchanges and most importantly a defined-contribution relationship of government to the system is the most effective way to solidify Medicare and solve the fiscal disaster than looms in the program. Perhaps this admission by Obama of the need to restrain costs in a real way will open the door to the Ryan/Wyden approach, which would be worth a tax hike to get passed.

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