Obama seeks deal, proposes cuts to Social Security

Yahoo News – Associated Press

WASHINGTON (AP) — President Barack Obama’s proposed budget will call for reductions in the growth of Social Security and other benefit programs while still insisting on more taxes from the wealthy in a renewed attempt to strike a broad deficit-cutting deal with Republicans.

The proposal aims for a compromise on the Fiscal 2014 budget by combining the president’s demand for higher taxes with GOP insistence on reductions in entitlement programs. But the plan was already encountering negative reviews from top Republicans for insisting on revenue and from liberals for its effect on the social safety net.  

Obama would reduce the federal government deficit by $1.8 trillion over 10 years, according to a summary from the Obama administration provided Friday y. The president’s budget, the first of his second term, incorporates elements from his last offer to House Speaker John Boehner in December.Congressional Republicans rejected that proposal because of its demand for more than a $1 trillion in tax revenue.

Congress and the administration have already secured $2.5 trillion in deficit reduction over the next 10 years through budget reductions and with the end-of-year tax increase on the rich. Obama’s plan would bring that total to $4.3 trillion over 10 years.

While the budget would not affect current automatic spending cuts that took effect in March, it would replace $1.2 trillion in across-the-board reductions that would have been scheduled to kick over the next nine years.

A key feature of the plan Obama now is submitting for the federal budget year beginning Oct. 1 is a revised inflation adjustment called “chained CPI.” This new formula would effectively curb annual increases in a broad swath of government programs, but would have its biggest impact on Social Security. By encompassing Obama’s offer to Boehner, R-Ohio, the plan will also include reductions in Medicare spending, much of it by targeting payments to health care providers and drug companies. The Medicare proposal also would require wealthier recipients to pay higher premiums or co-pays.

Obama’s budget proposal also calls for additional tax revenue, including a proposal to place limits on tax-preferred retirement accounts for wealthy taxpayers. Obama has also called for limits on tax deductions by the wealthy, a proposal that could generate about $580 billion in revenue over 10 years.

Boehner, in a statement, said House Republicans made it clear to Obama last month that he should not make savings in entitlements that both sides agree on contingent on more tax increases.

“If the president believes these modest entitlement savings are needed to help shore up these programs, there’s no reason they should be held hostage for more tax hikes,” Boehner said. “That’s no way to lead and move the country forward.”

The inflation adjustment would reduce federal spending over 10 years by about $130 billion, according to White House estimates. Because it also affects how tax brackets are adjusted, it would also generate about $100 billion in higher taxes and affect even middle income taxpayers.

The reductions in the growth of benefit programs, which would affect veterans, the poor and the older Americans, is sure to anger many Democrats. Labor groups and liberals have long been critical of Obama’s offer to Boehner for including such a plan.

The White House has said the cost-of-living adjustments would include protections for “vulnerable” recipients. But advocates for the elderly and for federal workers promptly criticized the proposal.

The National Committee to Preserve Social Security and Medicare said seniors have averaged a cost-of-living increase of 1.3 percent over four years.

“Arguing that is too generous shows how out of touch Washington is with the real-world economic realities facing average Americans,” the organization’s president and CEO, Max Richtman, said in a statement. “Adopting the chained CPI is nothing more than a political sleight of hand targeting our nation’s middle class and poor.”

Lawrence Mishel, president of the Economic Policy Institute, a liberal research organization in Washington, D.C., called the proposal “bad policy and even worse bargaining strategy.”

While Obama has proposed the slower cost of living adjustment plan during fiscal negotiations with Republican leaders, placing it in the budget would put the administration’s official imprint on the plan and mark a full shift from Obama’s stand in 2008 when he campaigned against Republican Party nominee John McCain.

In a Sept. 6, 2008, speech to AARP, Obama said: “John McCain’s campaign has suggested that the best answer for the growing pressures on Social Security might be to cut cost-of-living adjustments or raise the retirement age. Let me be clear: I will not do either.”

Administration officials insist Obama would only agree to the reductions in benefit programs if they are accompanied by increases in revenue, a difficult demand given the strong anti-tax sentiment of House Republicans.

That Obama would include such a plan in his budget is hardly surprising. White House aides have said for weeks that the president’s offer to Boehner in December remained on the table. Not including it in the budget would have constituted a remarkable retreat from his bargaining position.

Obama’s budget, to be released next Wednesday, comes after the Republican-controlled House and the Democratic-run Senate passed separate and markedly different budget proposals. House Republicans achieved long-term deficit reductions by targeting safety net programs; Democrats instead protected those programs and called for $1 trillion in tax increases.

But Obama has been making a concerted effort to win Republican support, especially in the Senate. He has even scheduled a dinner with Republican lawmakers on the evening that his budget is released next week.

House Republicans, however, have been adamant in their opposition to increases in taxes, noting that Congress already increased taxes on the wealthy in the first days of January to avoid a so-called fiscal cliff, or automatic, across the board tax increases and spending cuts.

As described by the administration official, the budget proposal would also end a loophole that permits people to obtain unemployment insurance and disability benefits at the same time.

Obama’s proposal, however, includes calls for increased spending. It calls for $50 billion in spending on public works projects. It also would make pre-school available to more children by increasing the tax on tobacco.

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AP writer Stephen Ohlemacher contributed to this report.

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