Obama’s budget bid for a ‘grand bargain’

By David M. Walker
April 10, 2013

President Barack Obama’s budget, released Wednesday, is getting a lot of criticism from ideologues on the right and left. That is one of the most encouraging things about it.

Though the president’s budget falls short in several important ways, it demonstrates his willingness to compromise — something most Democratic and Republican legislators have resisted. Now comes the critical stage in any real effort to achieve a “grand bargain,” when the president can show true leadership by bridging the divide between the parties and using the bully pulpit to address the American people in a constructive fashion that can lead to a deal.

The most helpful thing about the Obama budget is that, for the first time, the president has publicly proposed reforms to two key social insurance programs. By adopting a GOP-backed change in the inflation calculator — the so-called chained CPI — the president is accepting adjustments in the cost of living payments for those receiving Social Security.

He is also renewing his verbal offer to Republicans from last December’s negotiations for more than $400 billion in healthcare savings – including roughly $370 billion in Medicare spending over the next 10 years. His budget proposes to expand means testing for Medicare premium subsidies.

These proposals don’t go far enough. But they put social insurance programs on the table for discussion. That is a positive step.

Obama has also continued to push for greater tax revenues, and is willing to engage in tax reform to make the system simpler and fairer. But his specific budget proposals – limiting the amount of tax deductions for high-income individuals, and instituting the “Buffett Rule,” which essentially imposes a new alternative minimum tax on millionaires – are not enough. His budget does, however, recognize that increased revenue through tax reform coupled with much larger spending reductions is the way to achieving a meaningful long-term deal.

Predictably, Democrats and special interest groups on the left are in a lather over Obama’s willingness to “cut” social insurance programs. Republicans and special interests on the right, meanwhile, are outraged that the president wants more tax revenue. That is fine because there won’t be progress without angering the ideologues and hyper-partisans.

With time running out to strike a deal in 2013 — and no deal likely in 2014, an election year — the president must now step forward as the nation’s chief executive and bring the public together for a comprehensive and principle-based compromise.

Here’s what’s needed:

First, Obama should set an over-arching goal of bringing our ratio of public debt-to-gross domestic product down to a reasonable and sustainable level (60 percent to 70 percent) within the next 10 to 15 years. His budget gets us to 73 percent by 2023 — a positive step. But unless there are more structural reforms to Medicare and Social Security it will not be enough, given demographic trends and the expected increase in healthcare costs.

Second, Obama’s backing of the chained CPI is not only likely to help curb Social Security spending, it will raise more tax revenue. But we also need to make structural changes to make Social Security solvent and sustainable over the long haul. The president could propose a gradual increase in the eligibility age, while strengthening the benefit for lower income individuals and moderating future benefits for upper income beneficiaries. He could also call for an increase in the taxable wage cap and a supplemental savings element for Social Security.

Third, the president needs to promote genuine and comprehensive tax reform, rather than propose the Buffett Rule, with higher taxes on the wealthy and a cap on their deductions. We should consider getting rid of deductions, credits, exclusions and exemptions that make no sense and that rob the Treasury of more than $1 trillion annually. By doing so, we can expand the tax base; lower the top tax rate; make the tax system simpler, fairer and more progressive, and increase revenue at the same time.

Fourth, Obama’s budget doesn’t adequately address our soaring healthcare costs — the one thing capable of bankrupting the country. We need to rationalize our healthcare promises, change payment systems and impose a healthcare budget. We are the only industrialized nation with no limits on our healthcare spending.

There’s also one more step — beyond showing willingness for a principle-based compromise — that the president must take to pull off a grand bargain. He needs to engage and educate the American public, so we can understand the burning platform we are on and demand action from our elected officials.

Obama could follow the example set by President Bill Clinton when  approaching Social Security reform. Clinton participated in public forums with administration officials, bipartisan congressional leaders and policy experts, including myself. The issues were fully discussed, and the public’s views were aired.

Obama could take part in similar forums, with representative groups of voters, where nonpartisan experts explained our difficult fiscal situation, leading to a discussion of basic principles for a grand bargain and a range of nonpartisan reforms. With the weight of public opinion behind specific reforms, the president and congressional leaders would be more likely to stand up to various special interest group pressures and get a deal done.

Ultimately, we can get to a grand bargain by a show of extraordinary leadership – from the president, above all.  His new budget provides hope that he will rise to the occasion.

If he does, and if those on Capitol Hill follow suit, we may just reach a deal before the clock runs out. The next few months will be telling.

PHOTO (Top): President Barack Obama delivers remarks on the budget, with acting Director of Office Management and Budget Jeff Zients, in the White House Rose Garden in Washington, April 10, 2013. REUTERS/Jason Reed

PHOTO (Insert): President Barack Obama’s fiscal 2014 budget proposal is released and distributed to Senate staff members on Capitol Hill in Washington April 10, 2013.  REUTERS/Gary Cameron

 

 

 

 

 

 

6 comments

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The Teapublicans only goal is to destroy Obama, so no agreement will be reached.

Posted by Leftcoastrocky | Report as abusive

I think one of the things that hasn’t been mentioned too much, is that unlike most of Congress, President Obama doesn’t need to consider reelection. Whereas he is in a position to make unpopular decisions for a long term gains (though as the author says, it may still be falling short of what’s needed), Congressional members on both sides are risking their seats in office. Personally, it’s why I wonder why Congress has no limits to the number of terms they can serve, but that’s an argument for another day.

Posted by Matt10101 | Report as abusive

Chained CPI is the Holy Grail of Social Security fixes. If the goal of fiscal conservatives is to prevent runaway inflation, this is the key. Republicans should consider almost any compromise to make chained CPI happen now. Overcompensation for inflation for a large portion of the population (our future demographic for social security) results in a feedback loop that greatly amplifies inflation in following years.

Posted by QuietThinker | Report as abusive

Why does Reuters allow this paid shill for the billionaire Petersen and his “Institute” run his advertising disguised as a column?

The billionaire lass wants privatized social security, in spite of the fact that defined-contribution retirement plans (401Ks, IRAs, etc) have been a near complete-failure.

The SS Trust Fund is healthy though the mid-2030s and VERY MINOR tweaks of FICA withholding would fix that problem. Remove the income cap on FICA and we could even lower the retirement age.

Walker is a hack. Don’t give this hack air-time.

Posted by upstater | Report as abusive

@QuietThinker,

Can you provide credible evidence that the present SS COLA “overcompensates”? A COLA is, by definition, a purported commitment to preserving purchasing power.

It’s necessity is a matter of equity in any country whose government perpetually follows a policy of ongoing gradual debasement of it’s currency. Few understand that the U.S. never paid off the debt it had incurred by the end of WW II. It merely, over the years, has decreased the purchasing power of all those dollars to insignificance.

The SS COLA has NEVER been accurate for the simple reason that the “items in the typical shopping cart” of the average American and the “items in the typical shopping cart” of those of advanced age are quite different.

Seniors usual own their own homes, and buy few cars or clothes, major and recurring expenses for “the rest of us”. Instead they buy food, medicine, health care, utilities, fuel, bus tickets and taxi service, all being those expenses that have risen much faster in recent decades than the CPI.

This is known widely and consciously ignored because many in our government would rather use their “political capital” to grant Amnesty to twenty million illegal alien invaders from south of our border. While they know these people and their families will, over time, bankrupt this country and its social programs, in the short term there votes there…theirs for the buying. Stealing purchasing power from defenseless seniors is easy and leaves no stain on the hands of those guilty.

This is an obvious example of “giving aid and comfort” to enemies of America even as it abrogates the existing “social contract”. It is thus “treason” and all associated politicians who so indulge should be put up against a wall and executed by those whose votes and interests they have betrayed.

Posted by OneOfTheSheep | Report as abusive

If the American people had wanted the compromise budget proposed by President Obama, they would have voted for Romney.

Posted by ideallist2 | Report as abusive