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Obama Budget Is Meant to Draw the G.O.P. to the Table
Obama Budget Is Meant to Draw the G.O.P. to the Table
(about 3 hours later)
WASHINGTON — President Obama’s new budget has opened a debate over what it means to be a progressive Democrat in an age of austerity and defines him as a president willing to take on the two pillars of his party — Medicare and Social Security — created by Democratic presidents.
WASHINGTON — President Obama’s new budget has opened a debate over what it means to be a progressive Democrat in an age of austerity and defines him as a president willing to take on the two pillars of his party — Medicare and Social Security — created by Democratic presidents.
By his gamble on Wednesday in proposing budgetary concessions to Republicans on Social Security, created by President Franklin D. Roosevelt in 1935, and Medicare, the legacy of President Lyndon B. Johnson, Mr. Obama has provoked angry supporters on his left to ask whether he is a progressive at all. “President’s Budget Breaks Promise to Seniors” was the headline on an e-mail statement from Representative Alan Grayson, a liberal Democrat of Florida.
By his gamble on Wednesday in proposing budgetary concessions to Republicans on Social Security, the 1935 creation of President Franklin D. Roosevelt, and Medicare, the legacy of President Lyndon B. Johnson, Mr. Obama has provoked angry supporters on his left to ask whether he is a progressive at all.
But to Mr. Obama, making these changes in the nation’s most expensive domestic programs is more progressive than allowing them to overwhelm the budget in future years. A growing faction of liberals and moderate Democrats began arguing several years ago that unless the party agrees to changes in the entitlement benefit programs — which are growing unsustainably as baby boomers age and medical prices rise — then the spending will swamp all other domestic programs that help the poor, the working class and children.
The A.F.L.-C.I.O. president, Richard Trumka, in a blistering statement, called the proposed benefit reductions “wrong and indefensible.” An e-mail from Representative Alan Grayson, a liberal from Florida, was headlined “President’s Budget Breaks Promise to Seniors.”
It has been evident from his first months as president that the pragmatist in Mr. Obama made him sympathetic to this camp. In 2009, he considered a change in cost-of-living increases for Social Security until he was vetoed by Democratic leaders in Congress. But now in his fifth budget and the first of his second term, he has made his brand of pragmatic liberalism official.
But to Mr. Obama, cost-saving changes in the nation’s fastest-growing domestic programs are more progressive than simply allowing the entitlement programs for older Americans to overwhelm the rest of the budget in future years.
More broadly, Mr. Obama has taken the party’s internal debate public to a degree unseen since President Bill Clinton in the 1990s forced a liberal Democratic Party onto a centrist “third way.” Until now, attention has focused on the Republican Party and its postelection battles within its larger divisions over defining conservatism.
Even so, he emphasized that his support is contingent on Republicans agreeing to higher taxes from the wealthy and new spending, like for infrastructure, to create jobs.
Liberal and labor groups had mobilized in opposition to Mr. Obama even before the budget’s release, with activists protesting outside the White House on Tuesday and, on Wednesday, complaining on conference calls with reporters. Democratic leaders were muted in their support for the president’s plan, and were privately troubled that Mr. Obama had made his fiscal overture to Republicans without any sign that in return they would — as he demanded — accept both higher taxes on the wealthy and job-creating investments for public works, education and research.
The president’s views put him at the head of a small but growing faction of liberals and moderate Democrats who began arguing several years ago that unless the party agrees to changes in the entitlement benefit programs — which are growing unsustainably as baby boomers age and medical prices rise — the programs’ costs will overwhelm all other domestic spending to help the poor, the working class and children.
Speaker John A. Boehner did seem to temper slightly his earlier dismissiveness of Mr. Obama’s proposals, which reflected the last compromise offer that Mr. Boehner made to the president in December before their private deficit-reduction negotiations collapsed. Mr. Obama “does deserve some credit for some incremental entitlement reforms that he has outlined in his budget,” Mr. Boehner told reporters.
“The math on entitlements is just not sustainable,” said Senator Mark Warner of Virginia, one of the few Democrats to unequivocally endorse Mr. Obama’s budget. “And if you’re not finding ways to reform, where do you squeeze? Well, then you squeeze early-childhood programs, you squeeze Head Start, you squeeze education and veterans.
Perhaps more important, Mr. Obama’s budget overture drew cautious compliments from some Senate Republicans, including several who were among the dozen Mr. Obama earlier invited to dinner on Wednesday in the intimacy of the White House family dining room.
“There’s nothing progressive about — and no business argument for — a business or any other enterprise to invest less than 5 percent of its revenues on the education of its work force, its infrastructure and its R & D,” Mr. Warner added. “And that’s what we’re doing.”
People familiar with internal White House deliberations say that Mr. Obama himself recently made the decision to incorporate the concessions into his official budget, after Senate Republicans at a dinner with him a month ago urged him to take such a step — one that would divide his party — as a sign of his seriousness in a budget compromise.
The president’s $3.77 trillion budget, with a mix of deficit reduction through spending cuts and tax increases and new spending to spur the economy, projects a $744 billion deficit for the next fiscal year 2014 that begins Oct. 1. That is down from the $973 billion shortfall projected for this fiscal year, after four years of post-recession deficits exceeding $1 trillion.
The main new element of Mr. Obama’s budget is his proposal, offered previously in private negotiations with Mr. Boehner, for a new cost-of-living formula that would reduce Social Security benefits. On the spending side, Mr. Obama wants to spend $66 billion over 10 years to help states make prekindergarten available universally, paid for by higher taxes on tobacco products.
Representative Nancy Pelosi of California, the Democratic minority leader, has arranged for House Democrats on Thursday to hear a debate on Mr. Obama’s proposed change in the cost-of-living formula that determines Social Security benefits. The debate will pit the A.F.L.-C.I.O. counsel, Damon Silvers, who opposes the change in the formula, and Robert Greenstein, executive director of the liberal Center for Budget and Policy Priorities, which has long supported changes to entitlement programs as part of a bipartisan deal to protect other federal spending on, for example, antipoverty programs, the nation’s infrastructure and education.
“The American people deserve better than what we’ve been seeing: a shortsighted, crisis-driven decision making like the reckless across-the-board spending cuts that are already hurting a lot of communities out there, cuts that economists predict will cost us hundreds of thousands of jobs during the course of this year,” Mr. Obama said in the Rose Garden as his budget was released.
It has been evident from the president’s first months in office that the pragmatist in Mr. Obama has made him sympathetic to the thinking of Mr. Greenstein and others. In 2009, Mr. Obama considered proposing a much-discussed change in the cost-of-living formula for Social Security until Democratic Congressional leaders vetoed him.
“For years, the debate in this town has raged between reducing our deficits at all costs and making the investments necessary to grow our economy,” he added. “And this budget answers that argument, because we can do both. We can grow our economy, and shrink our deficits.”
But now in his fifth budget and the first of his second term, he has decided over some advisers’ objections to make that proposal — and his brand of pragmatic liberalism — official.
For the 2014 fiscal year, which begins Oct. 1, the federal deficit would be $744 billion, according to administration officials, down from the $973 billion shortfall projected for the current fiscal year, which would end four straight years of trillion-dollar deficits.
Under the president’s budget, the government would shift in 2015 from the standard Consumer Price Index — used to compute cost-of-living increases for Social Security and other benefits and to set income-tax brackets — to what is called a “chained C.P.I.” The new formulation would slow the increase in benefits and raise income tax revenues by putting some taxpayers into higher brackets sooner, for total savings of $230 billion over 10 years.
A $744 billion deficit next year would be equal to 4.4 percent of the total economy, as measured by the gross domestic product, down from a high of 10.1 percent of G.D.P. at the height of the recession. By decade’s end, the annual deficit would be 1.7 percent of G.D.P., officials said. That is a level that most economists consider reasonable in a growing economy, but annual deficits would begin to grow unsustainably thereafter, absent changes in law, as aging baby boomers drive up costs for federal benefit programs.
While many economists say the new formula is more accurate, opponents say it does not adequately reflect the out-of-pocket health care expenses that burden older Americans. All Social Security beneficiaries would be affected, but Mr. Obama proposes that at age 76 they would get gradual benefit increases to offset the depletion of their private assets or pensions.
With unemployment still high, Mr. Obama also proposed some new spending for both short-term and long-term economic growth. He called for $166 billion over 10 years for repair and construction of roads and rails and to start an infrastructure bank to provide seed money for public works; aid to states to keep teachers and first responders on payrolls; and job training money. Republicans have blocked such proposals since 2011.
In the president’s bid to revive bipartisan talks, his budget includes other proposals from his last compromise offer, made in December to Speaker John A. Boehner, Republican of Ohio, before their private deficit-reduction negotiations collapsed. The president’s budget would save $400 billion from Medicare over a decade, mostly from reductions to hospitals and other health care providers, but also through benefit and premium changes.
The 10-year budget plan would cut spending by about $1.2 trillion over that time to replace the indiscriminate across-the-board cuts, known as sequestration, that took effect March 1 when Mr. Obama and Republican leaders failed to agree on alternative deficit reduction measures.
The budget’s total 10-year savings would replace the $1.2 trillion in indiscriminate across-the-board cuts, known as sequestration, that took effect March 1 after Mr. Obama and Republican leaders failed to agree on alternative deficit-reduction measures.
His plan would have the effect of substituting reductions in so-called entitlement and mandatory benefit programs — whose growth is driving the future deficit projections, along with insufficient tax revenues — for the across-the-board reductions in the full range of domestic and military programs that have borne the brunt of deficit reductions to date, spawning cutbacks and furloughs in services as varied as air traffic control, Head Start and medical research.
By this budget, Mr. Obama has forced the party’s internal fiscal debate to go public in a degree unseen since President Bill Clinton in the 1990s pushed a liberal Democratic Party onto a centrist “third way.” Until now, attention has focused on the Republican Party’s postelection divisions over defining conservatism.
Beyond his proposed spending cuts, Mr. Obama would reduce deficits by more than $600 billion further over a decade through additional tax increases on the wealthy and some corporations — roughly the same amount of tax increases that took effect on Jan. 1 when he and Congress agreed to end the Bush tax cuts on high incomes.
Mr. Clinton’s second-term effort to address the long-term finances of Medicare and Social Security was aborted by his impeachment and then by unexpected budget surpluses that relieved the fiscal pressure to change the programs. Ultimately, Mr. Clinton left office better known for his policy of “Save Social Security First” — that is, stockpile the surpluses to pay the approaching costs of the baby boomers’ retirement — not cutting taxes, as Republicans wanted.
It is largely because of delays forced by those year-end negotiations, the administration has said, that Mr. Obama’s budget is reaching Capitol Hill two months late and after both the Republican-controlled House and the Democratic-controlled Senate have approved budget blueprints of their own. But those plans will be nearly impossible for the two chambers of Congress to reconcile, stoking White House hopes that Mr. Obama’s budget can provide an alternative path to a compromise.
Even before the release of Mr. Obama’s budget, liberal and labor groups mobilized in opposition, with activists protesting outside the White House on Tuesday and, on Wednesday, objecting on conference calls with reporters.
By the administration’s calculation, the total $1.8 trillion in savings over 10 years, together with nearly $2.6 trillion in spending cuts agreed to since mid-2011, including reduced interest on a lower-than-projected debt, would bring the tally for deficit reduction to more than $4.3 trillion. That is about the 10-year goal that both parties have sought, but Republican leaders are resolved to oppose new tax increases, and their House plan calls for much deeper reductions in Medicare and in most other federal programs except the military.
Democratic Congressional leaders were muted in their support for the president’s plan and were troubled that Mr. Obama had made his fiscal overture to Republicans without any sign that Republicans would compromise in turn.
“The question is, are Republicans going to be willing to come to us to do the serious things that they say are so important in terms of reducing our deficit,” said a senior administration official, who declined to be identified discussing the budget in advance of its release.
Their political concerns seemed to be validated when Representative Greg Walden of Oregon, the head of the House Republicans’ campaign committee, said on CNN that the budget was “a shocking attack on seniors.” His words were interpreted as a signal that in 2014 Republican candidates will again accuse Democrats of trying to cut Medicare and Social Security, even though Congressional Republicans led by Mr. Boehner have demanded Social Security and Medicare cuts throughout budget talks of the past two years.
“If they refuse to include revenues in any deal, then there will be no deal,” the official said. “It’s that simple. Basically, what’s not going to happen is a deficit-reduction approach that does it all on the backs of the middle class and seniors.”
The C.P.I change in particular “was the speaker’s idea,” said Representative Chris Van Hollen of Maryland, the senior Democrat on the House Budget Committee. “And for them to turn around and attack the president for including their proposal in his budget is so hypocritical.”
Under any of the plans, the federal budget for the next fiscal year would total nearly $3.8 trillion. But only one-third of that is so-called discretionary spending, split about evenly between domestic and military programs, which the president and Congress control annually. Most of the rest is spending for the entitlement programs — chiefly Medicare, Medicaid and Social Security — that automatically flow to beneficiaries unless the White House and Congress change them by law.
Mr. Boehner did temper his criticisms of Mr. Obama’s budget before its release. He told reporters that Mr. Obama “does deserve some credit for some incremental entitlement reforms that he has outlined in his budget.”
Mr. Obama would raise an estimated $583 billion in new revenue over a decade, mainly from two sources. Most of it would come from his proposal, made for the fifth time, to require that affluent taxpayers in higher tax brackets limit the deductions they take to the 28 percent rate; while Congress has ignored that idea in each instance, there are signs of growing support as lawmakers seek new ways to reduce deficits. The second change would impose his so-called Buffett Rule, requiring that people with annual taxable income above $1 million pay at least 30 percent in income taxes. That would raise about $53.4 billion over 10 years, according to the budget.
Additional new revenues would result from the proposed change in the government’s inflation formula for benefit programs and in the tax code’s brackets, though much of the debate over the proposal concerns Social Security benefits.
By moving from the standard Consumer Price Index to what is called a “chained C.P.I.” in 2015, the administration said the government would save $230 billion over 10 years, more than half of it through higher revenues and about $80 billion in reduced Social Security benefits. Mr. Obama also proposed to mitigate the impact on the poorest and oldest beneficiaries of Social Security and other benefit programs, including by exempting means-tested benefits from the change.
Mr. Obama and other administration officials have been emphasizing that he does not favor the change itself, but has included it in his budget along with other concessions that he made in his final compromise offer to Mr. Boehner in December before their budget talks fell apart. The president said he would not let the change become law unless Republicans in turn dropped their opposition to higher taxes on the wealthy.
Mr. Obama’s budget text noted that “most economists agree that the chained C.P.I. provides a more accurate measure of the average change in the cost of living” because it accounts for consumers’ flexibility in substituting cheaper items when prices go up. As it also noted, all recent bipartisan groups that have made recommendations for reducing long-term deficits, including the Simpson-Bowles Commission, have called for a switch to the chained C.P.I.
But liberal groups and other advocates for Social Security argue that it does not account for the sort of medical and drug costs that older Americans incur.
Ten-year projections in the administration’s budget track the fiscal imbalance that threatens in the coming decade, even if Mr. Obama’s proposed deficit reduction were to take effect.
The discretionary spending that covers most domestic and military programs would remain mostly flat, rising in dollar terms from $1.2 trillion in the 2014 fiscal year to about $1.4 trillion a decade later.
By contrast, Social Security benefits would increase from $860 billion next year, less than the projected $743 billion in payroll tax revenues for the program, to $1.4 trillion in the 2023 fiscal year — about equal to the entire amount of discretionary spending. Medicare and Medicaid – which would total $504 billion and $267 billion, respectively, next year – each would be nearly double those amounts in 2023. And interest on the federal debt, projected to be $222 billion next year, would be four times that in 2023.
This article has been revised to reflect the following correction:
This article has been revised to reflect the following correction:
Correction: April 10, 2013
Correction: April 10, 2013
An earlier version of this article misstated the amount that President Obama’s proposed budget would cut spending over 10 years. It is $1.2 trillion, not $1.2 billion.
An earlier version of this article misstated the amount that President Obama’s proposed budget would cut spending over 10 years. It is $1.2 trillion, not $1.2 billion.
