Image: Barack Obama, John Boehner, Harry Reid, Eric Cantor
Pablo Martinez Monsivais  /  AP
President Obama about to begin his meeting with congressional leaders at the White House Thursday. From left are, House Majority Leader Eric Cantor, Minority Leader Nancy Pelosi, House Speaker John Boehner, Obama, and Senate Majority Leader Harry Reid.
By Tom Curry National affairs writer
updated 7/8/2011 2:07:29 PM ET 2011-07-08T18:07:29

President Obama is reportedly seeking deficit cuts of $4 trillion over the next decade which would be about a one-third cut in the cumulative deficits.

Obama told reporters Thursday that he and congressional leaders had “a very constructive meeting” at the White House on Thursday and they’ll reconvene on Sunday “with the expectation that at that point the parties will at least know where each other’s bottom lines are” and will start “engaging in the hard bargaining that’s necessary to get a deal done.”

He said, “Everybody acknowledged that there’s going to be pain involved politically on all sides.”

Obama is now said to be open to changes in Social Security, Medicaid and Medicare that could result in big savings from those programs — which together by 2021 will account for half of all federal spending.

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But how might those changes affect people who hope to retire in the next decade? And how will Republican congressional leaders and Obama come up with revenue to reach a $4 trillion target?

Here are some questions and answers on the current state of play in the debt drama:

If I’m a 55-year old worker and I’m hoping to start collecting Social Security retirement benefits in 12 years, how would a change in Social Security benefits affect me?
We won’t know for sure unless and until a deal is unveiled. But one idea that is reportedly under discussion in the budget talks is a change in the formula used to make the cost-of-living adjustment (COLA) for retirees collecting Social Security benefits.

Video: Van Hollen: Deal must be fair (on this page)

In the past two years, there has been very low inflation and therefore Social Security beneficiaries have gotten no COLA — a sore point with many elderly people who contend that their costs have gone up, even if that hasn’t been reflected in the current formula.

In 2009, beneficiaries received a 5.8 percent COLA increase in their benefits.

The COLA has been in use since 1975. It is pegged to the consumer price index for urban workers. Some analysts say this measure overstates the true amount of inflation since it doesn’t account for product substitution, improvements in quality, and changes in consumers’ spending habits.

Story: If it's solvent until 2037, why pick on Social Security?

If an alternative measure — called “chained CPI” — were used to calculate the COLA, it would reduce Social Security outlays by about $112 billion through 2021, if it were adopted immediately, according to the Congressional Budget Office.

And that’s one of the devils in the details: would a change in the COLA formula apply immediately, or only to future retirees, let’s say those eligible to start getting benefits in 2021 and thereafter?

A change that applied only a decade in the future would at least allow current workers to try to save more for retirement. A change that took affect immediately or in the next few years would be politically perilous.

A leading House Democrat, Rep. Chris Van Hollen of Maryland, seemed to rule out any change in the COLA formula Friday, saying in an interview with NBC's Chuck Todd on The Daily Rundown, “I’m not saying we’re going to tinker with COLA."

How about raising the Social Security eligibility age for people who are still working?
The full retirement age for Social Security beneficiaries is now 66 and is rising to 67 for people born in 1960 and later.

But about 40 percent of workers choose to start getting benefits at age 62, which is permitted under current law.

Video: Chuck Todd: Boehner, Obama most optimistic in the room (on this page)

One possible change would be to nudge up that early benefits eligibility age. CBO has estimated that if the early eligibility age were gradually increased to 64, it would result in about $144 billion in savings in the first ten years.

Going further, if Congress were to do a new version of what it did back in 1983 — raising the eligibility age for all retirees — it would also be a big source of savings.

If the full eligibility age were gradually raised to 70 for workers born in 1973 and thereafter, that would cut Social Security outlays by 12 percent by 2050, which would equate to massive savings in dollar terms.

But, as CBO has noted, an increase in the eligibility age is, in effect, a cut in the benefits which people are expecting to get.

“Forcing people with lower-than-average life expectancies to delay claiming benefits would reduce their lifetime benefits.” CBO said in a report last March. “For example, someone who died at 68 would collect benefits for four years rather than six. And because people with lower earnings tend to have shorter life expectancies, they would be more likely to be harmed by the change.”

What changes in Medicare might produce big savings?
Keep in mind that Medicare cuts are already on the way: the health care overhaul which Congress enacted last year will reduce future Medicare spending by more than $400 billion over the next decade, according to CBO. Much of that will come from reducing payments to hospitals, hospices, and other providers.

If Congress decided to go beyond that, it could increase eligibility age for Medicare. Gradually raising the age of eligibility — now 65 for most people — until it reached 67 for people born in 1960 would save $125 billion in the first ten years and much more after that, compared to current law.

There are other possibilities. The independent commission headed by former Senate Budget Committee chairman Pete Domenici, a Republican, and former CBO chief Alice Rivlin, a Democrat, has proposed gradually raising Medicare premiums and using Medicare’s buying power to force pharmaceutical companies to, in effect, lower the prices they charge Medicare.

What about defense cuts?
Under existing law, defense spending is projected to fall from 19 percent of federal outlays today to about 15 percent by 2021.

Further cuts would likely require both scrapping some future weapons and — probably more importantly — forcing service members and military retirees to pay more of the cost of their health benefits.

The CBO reported last week that “growth rates in the military health system have been significantly higher than the corresponding rates in the national economy.”

What about revenue? With Republicans opposed to tax increases, is there a way to raise more revenue without raising tax rates?
Yes, there at least four ways to do it.

First, and probably the smallest source of revenue, would be for the government to sell assets, such as federal lands, and to auction off parts of the wireless spectrum, as it has done since 1994. In Obama’s fiscal year 2012 budget blueprint, he proposed $32.5 billion in wireless spectrum license user fees and auction revenues.

Second, if the economy grows at a brisker pace, and more people are hired, tax revenues will increase, as happened from 1997 to 2001, when revenues went up even as taxes were cut.

But the depressing news Friday that employment grew by a scant 18,000 jobs in June, and that since March, the number of unemployed has increased by more than half a million, has dashed hopes that the economy will soon accelerate.

In the near term, a significant increase in revenues coming from new workers paying taxes seems most unlikely.

Third, Congress could require those getting benefits such as Medicare to pay more of the cost of the program, as the Domenici-Rivlin panel proposed.

Finally, there’s the course proposed both by the the Domenici-Rivlin group and by the Bowles-Simpson commission which the president appointed early last year: get rid of most tax deductions, credits, and preferences. In Washington jargon, these are called "tax expenditures."

In return all income tax rates would be lowered.

“It is possible both to reduce (tax) rates dramatically and to achieve significant deficit reduction if tax expenditures are eliminated or scaled back and better targeted,” the Bowles-Simpson commission report said.

“In additional to reducing rates, reform must be projected to raise $80 billion of additional revenue… in 2015 and $180 billion in 2020,” they said.

Their proposal would increase revenue, with taxpayers in the top fifth of the income distribution being faced with about a 10 percent tax increase.

There’d be no way to "spin" that tax increase as anything other than that — and therefore it seems a stumbling block for Republicans.

© 2013 Reprints

Video: Chuck Todd: Boehner, Obama most optimistic in the room

  1. Closed captioning of: Chuck Todd: Boehner, Obama most optimistic in the room

    >> from washington, chief white house correspondent and political director and host of "the daily rundown," chuck todd . a new round of meetings on sunday. are they going to get it done?

    >> if a big deal gets done, we are going to hear the outlines of a frame work and something large some time sunday or monday. if it comes together, it's going to come together fast. it's what i have been told by both sides whether at the white house , on capitol hill among republicans. what's going on now is temperature taking on each side. you have the president meeting with nancy pelosi . try to suede her on the social security stuff. you have john boehner meeting with senator republicans sounding optimistic yesterday afternoon. at the same time, a plit between boehner and cantor and beliefs of what can get through. how many republicans would support a large deal that includes a trillion dollars in tax revenue . that's what's going on.

    >> the split is between boehner and cantor. also the president and pelosi?

    >> i think that's fair to say. i think it's fair to say on what the -- on sort of how much give there is for instance on the left and how much give there is on the right when it comes to taxes.

    >> it's boehner and obama being the most aggressive in the room and are acting the most optimistic now.

    >> ezra?

    >> i agree with everything chuck said. it's right. we don't know the content. we hear $1 trillion in revenue. that's a comprehensive reform overhaul. we are not doing it yet. it's the main concern, you cannot --

    >> what do we no about the cuts. you have dr. sachs saying the cuts are to the poorest americans. is that true or are there different ways to slice it?

    >> we are going to have provider cuts. it's going to hurt folks. i don't think there's too much on medicaid. there's a proposal called blended rate. it's a bad proposal. medicare, i don't think it's going to be too big of a worry. in social security , watch for them to change the inflation. it cuts benefits and social security that economists consider an increase. it also raises taxes because it moves people into higher tax rates more quickly.

    >> ezra, the big brain .

    >> one other thing i wanted to say, the deal that will get announced is target. we are going to find trillion in tax revenues . we are going to do it over six months. we are going to find 2.5 trillion in cuts. if they come out with something like that, they all know you can't find this trillion dollars in tax ref knew in two weeks. they have to agree on the per am ters.

    >> what i term the low level of whining among some house democrats that oh the white house isn't talking to us. they are doing this all by themselves, they are not keeping us posted or up to date. how much of a threat is that to the pass onlg of this?

    >> depends on the votes they need. i would argue that this time, they had a beef six months ago and three months ago. the white house was not really updating house democrats as well. the white house has been more aggressive in reaching out. nancy pelosi wasn't in the room during the cr in many of those meetings. it's a little different this time.

    >> this is the world's greatest chief of staff?

    >> oh, lordy.

    >> you know, it is interesting to me. somebody tweeted me. why don't we ever hear from bill daley . i said exactly. he does it dimptly. i's not to say one is better than the other. his style is different than rahm. rahm would be more addressive about what is going on and how the negotiations are going. this is not bill daley 's style. we'll see if this is the right style for this moment.

    >> eric bates?

    >> the white house was trying to cutback. they are going there for the first time and putting it on the table. that's the way you get, kind of, you know, deeper cuts and sweeping changes over time . it starts in a small way like we are just tinkering with the calculation. i's always been off the board, now it's on the board for the third time, i think where we -- there are things that can be done that make sense and don't impact people today or for a long time.

    >> how much does social security need to be reformed.

    >> that's the question. should that social security take the brunt for it?

    >> okay. chuck who do you have coming up on "the daily rundown"?

    >> chris van hollen . the white house advising net, mark zandy. we'll talk the jobs numbers which you will have at 8:30.

    >> thank you very much. see you at 9:00 eastern time here on msnbc.

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