The budget: Something for everyone
Barack Obama’s latest budget makes concessions to Republicans
Apr 13th 2013 | WASHINGTON, DC |From the print edition
[Greg Ip] WHEN negotiations over a grand bargain on America’s budget collapsed in December, Republican leaders vowed not to negotiate with Barack Obama again. But perhaps Mr Obama didn’t get the memo, because on April 10th he proposed a new budget crafted to lure Republicans back to the grand bargaining table.
It includes many of the priorities of his first four budgets, from higher taxes on the rich to more spending on infrastructure, and one big new one: $66 billion in federal grants to states and local school districts to expand pre-school for four-year olds, paid for by higher taxes on cigarettes.
More important, though, is that it includes the last offer Mr Obama made to John Boehner, the Republican speaker of the House of Representatives, just before Mr Boehner broke off talks in December. That included cuts to entitlements such as Social Security and Medicare, which provide pensions and health benefits to the elderly, traditional sacred cows of Democrats. “I don’t believe that all these ideas are optimal, but I’m willing to accept them as part of a compromise,” Mr Obama said.
On March 1st, automatic spending cuts kicked in that will cut federal spending on everything from air traffic control and defence to child care by $1.1 trillion over the coming decade. Repealing that so-called “sequester”, which is likely to drag down economic growth, has been a priority for Mr Obama. His budget would replace it with $1.8 trillion in alternative deficit cuts. Adding cuts and tax rises agreed to in previous deals would bring the total deficit reduction over the coming decade to $4.3 trillion, the White House reckons, enough to lower the budget deficit to 1.7% of GDP by 2023 from 6% this year. That is much lower than envisioned in last year’s budget, largely thanks to an unexpected fall in the rate of growth of health costs. The publicly held debt would fall from 78% of GDP in 2015 to 73% by 2023. Gross debt, a more internationally recognised benchmark, would equal 96% of GDP by then.
Mr Obama’s most significant concession is a proposal to index Social Security benefits to the “chained” consumer price index rather than the standard CPI. Inflation measured by chained CPI is on average 0.3 percentage points lower because it better captures consumers’ tendency to shift from expensive to cheaper products and shops. The chained-CPI proposal cuts $230 billion from the deficit over the next decade; but roughly half that is from higher revenue since tax brackets, credits and exemptions would also be indexed to lower inflation, pushing taxpayers more quickly into higher brackets.
The budget also includes $400 billion over the decade in cuts to Medicare, Medicaid (health care spending for the poor) and civil service health benefits. Most have been proposed in previous budgets, though a few have been expanded. Officials highlight a proposal that affluent senior citizens pay higher Medicare premiums, which would raise $50 billion. That, they said, met Republicans’ demands for more means-testing of entitlements.
Despite all those concessions, hated by many Democrats, the budget stands no chance of winning over Republicans in its current form. It is chock full of tax rises which Republican leaders have sworn not to accept after agreeing, under duress, to higher tax rates on the rich in January. Mr Obama would cap deductions such as for mortgage interest and health insurance for the wealthy, raise the inheritance-tax rate and lower its exemption, and limit how much the wealthy can accumulate in certain tax-deferred retirement accounts.
The entitlement cuts also fall well short of what Republicans want and independent budget experts consider necessary. The health-care cuts are borne predominantly by health providers, rather than by beneficiaries. Mr Obama entertained raising the eligibility age for Medicare to 67 from 65 in 2011, but his advisers say he no longer will. Without deeper reforms, an ageing population and health-care cost inflation seem certain to put deficits and debt on an upward course again after 2023.
Still, Mr Obama’s goal is more modest than winning over Republicans en masse. As on immigration and gun control, he need only win over enough Republican senators to overcome a filibuster in the Democratic-controlled Senate, and then hope to patch together a majority in the House. And for now, he doesn’t even need a vote: he only needs to convince the Republicans that he is sincere about curbing spending. That was the principal goal of his budget, and there are signs, albeit faint, it may be working. While Mitch McConnell, the Republican Senate leader, dismissed the budget as a “left wing wish list,” it’s one, he says, with an asterisk: Mr Obama has conceded that “something needs to be done to save entitlements from their inevitable slide toward bankruptcy.” That sounds like a start.
The original article is linked here.