Surprise: Obama Offers Entitlement Cuts in Exchange for Tax Hikes on Wealthy

Kyle Becker
On April 5, 2013
https://twitter.com/kylenbecker

President Obama has unexpectedly offered modest cuts to entitlements in exchange for tax increases on the wealthy. The gambit might prove attractive to Republicans concerned about their image.

The president’s proposal will reportedly include chained C.P.I. for Social Security, which would eventually reduce payments to seniors through inflation-based cost-of-living adjustments. The president’s proposals, in theory, would cut $1.8 trillion in deficits from government spending over ten years. WaPo had the president’s proposal on spending cuts:

The budget proposal slices $200 billion from already tight defense and domestic budgets. It would cut $400 billion from Medicare and other health programs by negotiating better prescription drug prices and asking wealthy seniors to pay more, among other policies. It would also generate $200 billion in savings by scaling back farm subsidies and federal retiree programs, among other proposals.

The proposal to change the formula to calculate Social Security payments, also originally part of the offer to Boehner, would generate $130 billion in savings and $100 billion in revenue, a result of the impact of the formula change on other government programs. But it is the change in Social Security payments to most recipients that is likely to generate the greatest outcry from the Obama administration’s traditional allies.

The president proposed tax increases on the wealthiest as part of a plan to close the deficits:

The budget is more conservative than Obama’s earlier proposals, which called for $1.6 trillion in new taxes and fewer cuts to health and domestic spending programs. Obama is seeking to raise $580 billion in tax revenue by limiting deductions for the wealthy and closing loopholes for certain industries like oil and gas. Those changes are in addition to the increased tobacco taxes and more limited retirement accounts for the wealthy that are meant to pay for new spending.

Such tax increases, nonetheless, cannot be called ‘pro-growth.’ The CBO forecast economic growth this year at a meager 1.4%, and taxing the private sector will not improve future estimates. As the CBO also forecasts, entitlement spending will explode at the end of this decade if serious reform isn’t undertaken.

The president was able to achieve $600 billion in tax hikes over ten years in the fiscal cliff deal without incurring any meaningful spending cuts. The payroll tax increase was particularly unpopular with working Americans and contributed to Obama’s declining political capital on the economy;along with the crisis-mongering about the sequester’s 2.4% cut to government spending.

The New York Times originally squealed that “Social Programs Face Cutbacks…” but the headline was changed to “Obama Budget to Include Cuts to Programs in Hopes of Deal.” NYT writer Jackie Calmes’ commentary:

Congressional Republicans have dug in against any new tax revenues after higher taxes for the affluent were approved at the start of the year. The administration’s hope is to create cracks in Republicans’ antitax resistance, especially in the Senate, as constituents complain about the across-the-board cuts in military and domestic programs that took effect March 1.

Mr. Obama’s proposed deficit reduction would replace those cuts. And if Republicans continue to resist the president, the White House believes that most Americans will blame them for the fiscal paralysis.

Despite the outcry from the left and its usual constituents, such a deal with Obama might be wise and prudent. National Journal’s Ron Fournier suggests why such a deal is neither off-the-table, nor disastrous for Republicans — despite the tax increases: What is the GOP’s political incentive to deal?

First, getting the signature of a Democratic president on a bill reducing entitlements would be a victory for a generation’s worth of Republican candidates. Casting GOP politicians as Granny-bashers would be harder to do after a Democratic White House tweaks Medicare and Social Security.

Second, even token reforms by Obama in 2013, opens the door to deeper entitlement changes in the future.

Finally, while most GOP House members are virtually immune to electoral pressure because they face easy reelection campaigns, Republican Party leaders want them to broker a fair deal with Obama that helps the party’s horrible image problem.

And Ron Fournier makes some good points. Furthermore, as we saw with the fiscal cliff deal that raised payroll taxes, the Democrats become exposed when they inflict pain on America to pay for their supposed ‘benevolence.’The chart below shows the growth in entitlement spending since the Great Society up to just mid-2009 (of course, entitlement spending will continue to soar under Obamacare):



Making Americans pay for the goodies being doled out in Washington could teach people a hard lesson, especially as the private sector continues to be hammered in terms of job creation.

There is a connection between entitlements, government spending, and real job creation; the sooner Americans figure it out, the better off they will be.

http://www.ijreview.com/2013/04/4526...kes-on-wealthy