Obama will propose cuts to entitlement programs in new budget

President Obama has included entitlement cuts long desired by the GOP in his latest budget proposal.
(Susan Walsh / Associated Press)
<i>This post has been corrected, as indicated below.</i>

WASHINGTON – As part of his new budget, President Obama will propose cutting Social Security and other government benefits by lowering the cost-of-living adjustment, putting a key GOP negotiating demand into a formal White House proposal for the first time.

The proposed change to the government’s inflation measure, the consumer price index, is opposed by many congressional Democrats, although House Minority Leader Nancy Pelosi (D-San Francisco) recently suggested she was willing to consider it, if it could be done in a way that did not hurt the poor.

The lower annual adjustment would shave a few dollars a month off the checks of retirees, veterans and others who depend on government income programs.

The president had discussed the change as part of deficit-reduction talks with House Speaker John A. Boehner (R-Ohio) last year and included it as part of a plan to reduce the deficit by $1.8 trillion over 10 years. But Obama has insisted that any such switch would also have to include new revenues.

The budget proposal will also increase revenue, including changes in the tax code that target wealthier households by setting limits on tax-deferred retirement accounts for millionaires and billionaires.

A senior administration official said that the president’s budget, which he will send to Congress next week, was not his “ideal deficit reduction plan,” but also 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.”

But the official, who was granted anonymity to discuss the budget before it is released, also stressed, “The president has made clear that he is willing to compromise and do tough things to reduce the deficit, but only in the context of a package like this one that has balance and includes revenues from the wealthiest Americans and that is designed to promote economic growth.”

Republicans, however, have shown no inclination to consider new tax revenues. Boehner and Senate Minority Leader Mitch McConnell (R-Ky.) have said tax hikes are off the table.

By taking the proposal for so-called chained-CPI out of the closed talks with Republicans and introducing it in his budget, the president hopes to demonstrate to Republicans his willingness to work with Republicans to achieve the nation’s deficit-reduction goals. White House budgets are largely symbolic documents, without the force of law, that establish the terms of debate.

“This isn’t about political horse-trading,” the administration official said, “it’s about reducing the deficit in a balanced way that economists say is best for the economy and job creation.”

Organized labor, as well as seniors and veterans groups, has raised objections, and the Senate unanimously rejected the proposal in a symbolic vote last month as Republicans, too, appeared uninterested in pursuing it.

The White House maintains that the additional $1.8 trillion in spending cuts and new revenues over the decade, along with $2.5 trillion already achieved from past talks with the GOP, would put the nation in line to reach the goals outside analysts have suggested to improve the fiscal outlook.

Changing the cost-of-living adjustment has long been promoted by economists as a more accurate measure of inflation. Even though the cost-of-living change also would be applied to the tax side of the budget – bringing in revenue as tax brackets grow more slowly – the White House approach will be sharply criticized by many of Obama’s allies. The slight tweak to revenues and benefits would save the Treasury as much as $390 billion over 10 years, according to estimates from outside budget analysts.

[For the Record, 10:35 a.m. PST April 5: This post has been corrected to exclude Medicare from Obama’s proposed budget cuts.]

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