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It would obtain an additional $200 billion in savings by scaling back farm subsidies and trimming federal retiree programs.
The most sweeping proposal in Obama’s budget is a switch in the way the government calculates the annual cost-of-living adjustments for the millions of recipients of Social Security and other benefits. The new method would take into account changes that occur when people substitute goods rising in price with less expensive products. It results in a slightly lower annual reading for inflation.
Defense budget counts on cuts Congress rejected
Call it the wishing and hoping defense budget.
President Barack Obama’s 2014 blueprint assumes that Washington reverses the automatic budget cuts that have become a daily reality for the military. It also counts on Congress embracing the domestic base closings, increased health care fees and weapons terminations that lawmakers resoundingly rejected in recent years.
The proposal unveiled Wednesday calls for a base Pentagon budget of $526.6 billion — $52 billion more than the $475 billion level established by the across-the-board spending cuts set in the budget agreement between Obama and congressional Republicans in August 2011.
The budget plan includes a $88.5 billion placeholder for additional war costs in Afghanistan as Obama decides on the pace of the drawdown of American combat troops next year..
The switch in the inflation formula would cut spending on government benefit programs by $130 billion over 10 years, although the administration said it planned to protect the most vulnerable, including the very elderly. The change would also raise about $100 billion in higher taxes because the current CPI formula is used to adjust tax brackets each year. A lower inflation measure would mean more money taxed at higher rates.
In the tax area, Obama’s budget would also implement the "Buffett Rule" requiring that households with incomes of more than $1 million pay at least 30 percent of their income in taxes.
Congress and the administration have already secured $2.5 trillion in deficit reduction over the next 10 years through budget reductions and with the end-of-year tax increase on the rich. Obama’s plan would bring that total to $4.3 trillion over 10 years.
It is unlikely that Congress will get down to serious budget negotiations until this summer, when the government once again will be confronted with the need to raise the government’s borrowing limit or face the prospect of a first-ever default on U.S. debt.
As part of the administration’s effort to win over Republicans, Obama will have a private dinner at the White House with about a dozen GOP senators Wednesday night. The budget is expected to be a primary topic, along with proposed legislation dealing with gun control and immigration.
Early indications are that the budget negotiations will be intense. Republicans have been adamant in their rejection of higher taxes, arguing that the $660 billion increase on top earners that was part of the late December agreement to prevent the government from going over the "fiscal cliff" is all the new revenue they will tolerate.
The administration maintains that Obama’s proposal is balanced with the proper mix of spending cuts and tax increases.
Obama has presided over four straight years of annual deficits totaling more than $1 trillion, reflecting in part the lost revenue during a deep recession and the government’s efforts to get the economy going again and stabilize the financial system.
The budget plan already passed by the GOP-controlled House projects reaching balance in 2023, a year in which Obama’s proposal projects a $439 billion deficit. The budget outline approved by the Democratic-controlled Senate tracks more closely to the Obama proposal, although it does not include changes to the cost-of-living formula for Social Security.
A glance at key Obama budget provision
President Barack Obama’s 2014 budget includes a key change in the way the government measures inflation. If adopted, the chained Consumer Price Index would have far-reaching effects because so many programs are adjusted each year based on year-to-year changes in consumer prices.
How it would work:
The new measure would show a lower level of inflation than the more widely used Consumer Price Index.
It assumes that as prices rise, consumers would turn to lower-cost alternatives, reducing the amount of inflation they experience. For example, if the price of beef increases while the price of pork does not, people will buy more pork rather than pay the higher beef prices.
What it would save:
The change would reduce the federal budget deficit by $340 billion over the next decade, according to congressional estimates. However, the White House has said it wants the adjustments to include protections for “vulnerable” recipients, so the savings could be less.
How it’s perceived:
The proposed change is unpopular among many Democrats in Congress and advocates for seniors who complain that it would disproportionately hit low- and middle-income families.
It’s popular among budget hawks because it cuts benefits and increases taxes gradually, in ways that might not be readily apparent to most Americans. The savings, however, become substantial over time.
What would be cut:
Among the spending cuts that would result from the change over the next decade:
— Social Security: $127 billion.
— Federal retirement programs for military and civilian workers and Supplemental Security Income: $38 billion.
— Medicare and Medicaid: $29 billion.
On average, annual increases in Social Security payments, government pensions and veterans’ benefits would be about 0.3 percentage points smaller each year, according to the chief actuary for the Social Security Administration.
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