Move to the Center or Strategic Positioning?: Obama’s Budget, Entitlement Cuts, and Tax Hikes

By: Reginald Augustus

Is the President’s budget boldly moving him toward the center of the aisle?  It may appear to be the case but a much broader strategy is at play.  Next week President Barack Obama will announce his budget plan that many expect to include cuts to entitlements such as social security and a modest hike in taxes.  This plan is sure to make many Democrats cringe and have Republicans continue playing devil’s advocate.

Specifically, the plan will include a roughly $1.8 trillion dollar deficit reduction over the next ten years. $1.2 trillion in deficit reduction will come from entitlement reforms and spending cuts.  About $400 billion of the cuts would come from health care savings such as Medicare and Social Security.  Another $200 billion would allegedly come from federal employee retirement programs, farm subsidies, and the unemployment compensation system.  An increase to the tobacco tax will help to fund expanded access to pre-K.  Limits would be set on tax-preferred retirement accounts to prohibit wealthy people from putting more than $3 million into retirement accounts that are tax-preferred.  The proposed plan would also prevent individuals from collecting both full disability and unemployment benefits for the same period.

The AFL-CIO, which is one of the President’s biggest supporters, came out strongly against his new budget.  They have started a petition against cuts to Social Security and Medicare.  One of the biggest issues in the plan regards the use of a different inflation measure called the Chain CPI, which affects Social Security benefits. The AFL-CIO argues that this inflationary measure is based on a premise that the CPI is increasing at a pace that is faster than the actual cost of living for many elderly and many other at risk citizens living on low incomes.  Most seniors have a fixed income while spending a disproportionate amount of their income on health care.  This tends to lead to a more rapid inflation than the general population experiences.

The formula change will be a breaking point between the President and House and Senate Democrats as well. Many have recently expressed their opposition to the idea.  The Administration argues that the change in Social Security benefits will have an effect on the annual cost-of-living adjustments (COLA) and not the seniors and poverty stricken.  The reasoning being that the changing of the inflation calculation will better align with the behavior of substitution.  Many consumers who are on fixed incomes generally don’t buy as many expensive products when prices rise.  Instead, they purchase cheaper substitute products and thus can maintain an adequate standard of living even though their annual COLA is lower.

Republicans want a different approach to entitlement reduction and will likely fight any revenue increases from tax hikes.  Republicans want to reduce the amount of benefits received by recipients for Medicare and attain savings for Medicaid through the transferring of block grant funds to States.  Republicans will most likely paint the President as trying to cut entitlements for those most in need.

There is no question that this is a risky if not bold move by the President.  A poll that was recently administered by the Pew Research Center found that 41% of those that responded want Social Security spending increased.  Only a meager 10% wanted to see a decrease in Social Security.  The truth of the matter is that our Country is at a crossroads.  We have an ever growing deficit that we must deal with in order to secure our future generations.  We have a health-care system that is unsustainable and a huge amount of debt that is owned by China.  A balance needs to be found to take care of our older citizens while also looking out for our younger ones.  Tough decisions have to be made.  The President has to make many of them.  During President Obama’s first term there was nothing but partisan posturing by both sides of the aisle.  Little got accomplished.  Both the Democrats and Republicans played their part in the circus called Congress.  Our nation became splintered with divisive rhetoric, anger, and hate.

The President is looking to make compromise in his budget, to begin to bring the Country back together and to provide economic stability.  It seems the President is willing to consider certain reductions to entitlements only with agreed upon revenue increases (taxes hikes).   The President’s proposed budget is attempting to have a balanced approach of spending cuts in conjunction with tax revenue increases from the wealthiest Americans to reduce the Country’s deficit.  The President’s budget plan includes many tough decisions that will affect the entitlements and taxes of the country’s citizens.  Making the tough decisions now, will spare this country dire ones later.

Sources:

http://www.businessinsider.com/obama-budget-boehner-response-chained-cpi-social-security-entitlements-2013-4

http://www.people-press.org/2013/02/22/as-sequester-deadline-looms-little-support-for-cutting-most-programs/

http://www.huffingtonpost.com/2013/04/05/obama-budget_n_3019281.html

http://www.nytimes.com/2013/04/05/us/social-programs-face-cutback-in-obama-budget.html

http://www.businessinsider.com/obama-budget-chained-cpi-afl-cio-social-security-cuts-2013-4

http://www.cbsnews.com/8301-250_162-57578083/obama-to-propose-entitlement-cuts-tax-hikes/

Leave a Reply

Your email address will not be published. Required fields are marked *