President Barack Obama’s new budget will call for cuts to Social Security and Medicare, according to the New York Times. This is a huge, shocking development—except for the fact that Obama called for these things already.
The Social Security cut is a proposed adjustment to the benefits formula, so that it rises more slowly over time. The wonks call it “chained CPI,” since it involves recalibrating the relationship between benefits and the consumer price index. The Medicare cut is a proposal to raise the premiums that higher-income seniors pay for their physician coverage under the program. The fiscal jargon for this is “means-testing.”
Both would reduce the benefits that some seniors get in the future. Both would, as a result, save the government money. When Obama embraced these ideas previously, first in private negotiations and then in public statements, he said they could be part of a deal only if Republicans also made concessions. Specifically, he has asked Republicans to sign off on higher revenue, whether by raising rates or closing loopholes. The budget makes the same essential offer: In addition to calling for thee entitlement cuts, it will call for higher revenue, primarily through a limit on the deductions that high-income Americans can take on their taxes.
So what’s the news? Mainly that, for the first time, Obama will be putting these ideas into the formal budget document he presents to Congress. And what that means is open for interpretation.
Liberals worry that the administration is back to negotiating with itself. By committing to this offer, the administration now has one less concession to dangle in future negotiations. If budget talks get serious, Republicans will come with their own offer and demand that the administration, along with its allies, make significant new concessions that would do a lot more harm—whether it’s bigger cuts to Medicare or cuts to other programs, like Medicare or food stamps, that the administration has tried desperately to protect. Negotiations between the administration and Republicans have been known to play out that way, as my colleague Noam Scheiber can tell you.
Administration officials take a different view. They are telling reporters like me that they’d already made this concession—and that, as before, Obama would agree to it only if the Republicans meet his demands for higher revenue. If anything, they say, this offer strengthens their hand because it undermines the stubbornly persistent, but totally false, argument that Obama won’t contemplate entitlement cuts. In addition, as Greg Sargent notes today, administration officials see a Grand Bargain with some modest entitlement cuts as preferable to living with sequestration, which Republicans so far have tolerated more than many people expected.
It’s impossible to know who is right until this plays out. Maybe Republicans refuse to consider new revenue, as they always have, and Obama walks away looking even more reasonable than he did before—without having given up a thing. Or maybe Republicans parlay this into a budget deal that ends up cutting spending a lot more, with a lot less revenue, at a time when we should be doing the opposite. The budget debate has been in a stalemate for a while now, but the effects of the sequestration, from the closing of towers at small airports to loss of access to cancer drugs, seem finally to be having an effect.1 And Republican opposition to new taxes may be softening just a bit.2 It’s possible, then, that the dynamics of the fiscal debate are about to change.
They certainly should, although count me skeptical that they’ll change in a positive way. Friday’s employment report was decidedly less encouraging than the last few, with just 88,000 new jobs created in March. It’s never a good idea to read too much into one month’s numbers, but economists for a while have been saying that the recovery, while steady, isn’t as strong as it needs to be given the huge numbers of Americans still out of work. The focus ought to be on bolstering growth in the short term, while reducing the deficit in the long term.
Obama’s budget will take that general approach—an administration official tells me it will have $50 billion in infrastructure spending, as he’s proposed before, while reducing the deficit by $1.8 trillion over the next ten years. That would bring the ratio of deficit-to-GDP, one measure economists like to use as a proxy for fiscal responsibility, down to a relatively stable and manageable 1.7 percent. The budget will also include Obama’s new initiatives, among them the very promising proposal for universal pre-kindergarten, with offsetting revenue or cuts to pay for them. (Those offsets would be separate and in addition to the revenue and cuts Obama is proposing as part of his deficit package, an administration official confirms.)
But those items will probably be afterthoughts in the debate that follows the budget’s formal release on Wednesday. We have pressing problems on our hands—people struggling to pay for basic necessities, kids trapped in poverty, infrastructure that desperately needs repairing. Instead of talking about how to fix those problems, we’ll be debating how much spending to cut and how quickly. That should be the real news of the day.
House Majority Leader Eric Cantor, of all people, hinted at openness to new revenue, although he quickly walked it back.