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Week in Review: Budget Overhaul

April 5, 2013

Casey Mensinger, ‘15

The next key conversation in Congress is discussion of President Obama’s new budget plan, which he is presenting on Wednesday. This budget plan may be a subject of controversy for both Democrats and Republicans, as Obama is departing from the usual annual budget reform most presidents pass. Specifically, the President takes the risk of proposing cuts to Social Security and Medicare, mobilizing opposition from far-left advocacy groups. Many, however, see this move as the President demonstrating his willingness to work with Republicans, his plan embodying the final compromise offer Obama had made to Speaker John Boehner at the end of last year. This compromise occurred before Boehner had abandoned negotiations in opposition to the President’s demand for higher taxes from the wealthy, so it is unclear whether Boehner will be willing to compromise on this newly-proposed budget.

 

The Obama administration is hoping that this new budget will create cracks in the Republican “anti-tax” resistance, especially in the Senate. Across-the-board cuts in military and domestic programs, which took effect on March 1, have been greeted with complaints from many constituents; but Obama’s proposed deficit reduction would replace those cuts. That said, if Republicans continue to resist, it is possible that most Americans will blame them for what could become a fiscal paralysis.

 

Obama’s budget also proposes a new inflation formula that would reduce the cost-of-living payments for Social Security benefits. This is called “chained CPI,” and is not supported by most Democrats and left-leaning advocacy groups. This chained CPI will call for reductions in the growth of Social Security and other benefit programs by including a proposal to lower the cost-of-living adjustments to government social safety net spending. This, in effect, combines the President’s desire for higher taxes with the GOP insistence on reductions in entitlement programs. The chained CPI idea would effectively curb annual increases in a broad amount of government programs, namely on Social Security.

 

Eric Cantor, House Majority Leader, reiterated the GOP’s anti-tax stance and called for reducing spending by cutting waste and making changes in federal programs, not signaling that he is willing to compromise with the President. It is precisely the growth of these entitlement programs that is the main driver behind projections of mounting debt as baby boomers age and medial costs rise. Republicans want Obama to elaborate on his ideas for reducing said entitlement programs, but there is fear from the Democratic side that doing this will anger his left-leaning supporters and expose him to a great deal of criticism from his own party. So far, there is no indication that Republican leaders Boehner and Mitch McConnell, Senate Republican leader, will compromise on the budget in the way Obama hopes. Overall, the budget plan would reduce the projected annual deficit by $1.8 trillion over 10 years; this would include proposing a tobacco tax increase, limiting how much people can accumulate in tax-preferred savings accounts, and  eliminating a loophole that allows receiving disability and unemployment benefits at the same time. With those inclusions, the total deficit reduction increases to $4.3 trillion over 10 years, the goal both parties have set for the fiscal future. The cuts include $400 billion from health programs as well as $200 billion from other areas, including subsidies, employee retirement program, the Postal Service, and others.

 

Other spending and tax credit initiatives that the President puts forth in this annual budget include aid for states to make free pre-K education available nationwide, a promise Obama made in his State of the Union address. This would then include raising federal taxes on cigarettes and tobacco products, as a compromise. The budget President Obama is putting forward shows that he is willing to compromise to reduce deficits, but only with balance created by including revenues from the wealthiest Americans. The CPI change and other proposals that Republican leaders have pushed for will only be accepted if Congressional Republicans are willing to do more on revenues. There is no telling what kind of compromise Congress will come to, if any, on this new budget, but it is clear that President Obama is taking the steps towards a more middle-grounded plan.

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