Obama Embraces Chained CPI

Obama is negotiating with himself again. The news this morning is that the administration is going to propose benefit cuts to Social Security when it releases its budget next week. According to Jackie Calmes' frontpage story, "Obama Budget to Include Cuts to Programs in Hopes of Deal":

Some Senate Republicans have been urging the president to speak out more to Americans about his ideas for reducing the growth of entitlement programs. While the White House posted the offer to Mr. Boehner on its Web site this year, aides previously said that Mr. Obama would not include its provisions in his official budget documents. To do so, some said, would expose him to Democrats’ criticism that he is too quick to compromise and allow Republicans to embrace the proposals for spending cuts, in particular the C.P.I., but ignore those for tax increases.

Neither the president nor senior aides privately hold much hope that Republican leaders — Mr. Boehner and Senator Mitch McConnell of Kentucky, the Senate Republican leader — will compromise. So Mr. Obama’s strategy of reaching out to other Senate Republicans reflects a calculation that enough of them might cut a budget deal with the Democratic Senate majority. If that happens, the reasoning goes, a Senate-passed compromise would put pressure on the House to go along.

It's hard to fathom why Obama is making this move. Embracing a chained CPI didn't lead to a breakthrough in the fiscal cliff negotiations last December. If anything Republican unwillingness to compromise, to broker a deal of any kind, has only increased in the last three months, proof of which was on display with the sequester. And, let's not forget, it was Obama's indulgence in self-bargaining that brought us the sequester in the first place; it came out of the 2011 debt ceiling debacle.

For a good reading of the tea leaves of what Obama's latest capitulation means check out this morning's naked capitalism post by Yves Smith, "Now It's Official: Obama Sells Catfood Futures, Um, Social Security and Medicare Cuts":

There is no more pretense possible. As we’ve warned for some time, Obama is eager to put a notch on his belt by being the President that rolled back the New Deal programs that helped create broad-based middle-class prosperity and dignity. He’s cast himself as an adult inflicting discipline on profligate Americans. But in reality, the profligacy was most concentrated among elite financiers who used leverage on leverage vehicles to stoke liquidity that led to worldwide underpricing of risk. They paid themselves record bonuses in the years immediately preceding the crisis, and then in a grotesque display of ingratitude, did so again in 2009, able to do so only thanks to massive taxpayer support, alphabet-soup special borrowing programs, and the tax on savers known as ZIRP. And the direct result of their looting exercise that produced the crisis was the explosion in government deficits, due to a collapse in tax revenues and a rise in payments under countercyclical programs such as unemployment insurance and food stamps.

Yes, it's all very disspiriting but, sadly, unsurprising. The Counterpunch Left has been shouting about Obama's craven nature for years. Now it's almost impossible to deny. Obama apologists might float the argument that he's only proposing benefit cuts because he knows there is no chance, due to Republican intransigence, that they will go into effect; he just wants to see if it's possible to get a budget through the Senate with GOP support in order to reap the whirlwind in the reconciliation process with the House. This, as Yves Smith says, is Obama as 11-dimensional chess master, and it is a fantasy. Our worry should be a repeat of the 2011 debt ceiling crisis.

To return to Calmes' article, here are the nuts and bolts, besides the chained CPI, of what will be in Obama's budget:

According to administration officials, the president’s budget plan would reduce projected annual deficits by $1.8 trillion over 10 years, even with the select spending increases. To offset the initiatives’ cost and avoid adding to deficits, Mr. Obama will propose the tobacco tax increase, a limit of $3 million on how much people can accumulate in tax-preferred savings accounts and repeal of a loophole that allows people to collect both disability and unemployment benefits.

Together with the $2.5 trillion in deficit reductions that Mr. Obama and Congressional Republicans have agreed to since 2010, that would bring the total deficit reduction to more than $4.3 trillion over 10 years by the administration’s computations — just over the goal that both parties have set for stabilizing the growth of the national debt. 

Of the more than $2.5 trillion to date in projected 10-year budget savings, nearly 80 percent would result from spending cuts. The rest would derive from tax increases on high incomes that became law on Jan. 1, in the tax agreement that the two parties reached at year-end when the efforts for a broader deficit-reduction deal collapsed. 

Mr. Obama’s proposals to reduce deficits $1.8 trillion more over a decade track his offer to Mr. Boehner, adjusted for the roughly $600 billion in higher taxes that became law in January. He will propose more than $600 billion in new revenues — his last offer had called for $1.2 trillion in taxes — mostly by limiting to 28 percent the deductions that individuals in higher tax brackets can claim. Congress has ignored that idea in past years. 

Deficits would be reduced another $930 billion through 2023 as a result of spending cuts and other cost-saving changes to domestic programs, and $200 billion more due to reduced interest payments on the federal debt. 

Mr. Obama’s proposed spending reductions include about $400 billion from health programs and $200 billion from other areas, including farm subsidies, federal employee retirement programs, the Postal Service and the unemployment compensation system.

In Medicare, the savings would mostly come from payments to health care providers, including hospitals and pharmaceutical companies, but Mr. Obama also proposes that higher-income beneficiaries pay more for coverage.