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With budgets on the table, Washington divide remains as wide as ever

President Barack Obama gestures as he speaks during an Easter Prayer Breakfast in the East Room of the White House in Washington, Friday, April 5, 2013.
President Barack Obama gestures as he speaks during an Easter Prayer Breakfast in the East Room of the White House in Washington, Friday, April 5, 2013.Susan Walsh / AP

With the Friday release of ingredients of President Barack Obama’s budget proposal for the new fiscal year, it is clear that the fiscal policy divide remains as wide as ever between Democrats and Republicans.

Obama will once again propose some changes in entitlement programs — such as a new formula for Social Security, which would effectively reduce retirement benefits, and raising the premiums that upper-income Medicare beneficiaries would need to pay for coverage.

Some Republicans have supported such proposals in the past and might support them now.

But in a sense it’s the summer of 2011 all over again, when a tentative deal between Obama and House Speaker John Boehner collapsed. For example, the new formula for Social Security benefits, called “chained CPI,” was part of the failed Obama-Boehner negotiations in 2011.

However, there’s been one decisive change since that busted budget deal two years ago: On Jan. 2, Obama signed into law a tax increase worth about $600 billion over ten years. Since then, Republican congressional leaders have repeatedly rejected Obama’s and other Democrats’ calls for another round of tax increases.

After elements of Obama’s Fiscal Year 2014 budget plan were reported Friday, former congressional Budget Committee staffer Stan Collender said, “A grand bargain is still a long way — as in years — away. The president may get an agreement that can pass the Senate (although I doubt it), but the real problem is, and always has been, the House. The House GOP can't agree to additional revenues without risking its majority status so it won’t much care about what the Senate GOP agrees to do.”

House Speaker John Boehner signaled just that in response to the president’s budget. “If the president believes these modest entitlement savings are needed to help shore up these programs, there's no reason they should be held hostage for more tax hikes. That's no way to lead and move the country forward," Boehner said. 

Among House Republicans a deep-seated skepticism remains that increased revenue would actually be used for deficit reduction, instead of paying for new federal entitlements.

In simplest terms, here’s how the three different budget blueprints offered by Obama, Senate Democrats and House Republicans compare:

The Obama plan: Higher taxes through elimination of certain tax preferences for upper-income people; more cost-sharing by upper-income people for Medicare benefits; reductions in Social Security benefits through the new “chained CPI” formula.

The Senate Democrats’ plan: Higher taxes through elimination of certain tax preferences for upper-income people; some relatively small cost-saving changes in Medicare.

The House Republicans: Tax reform through lowering income tax rates and eliminating most tax credits and other preferences – but no additional revenue to be raised, other than from greater efficiency of a reformed tax code; fundamental change in Medicare for those who become eligible for benefits in 2024 or later, making the program a more market-based system, with subsidies for lower-income and sicker beneficiaries.

If an accord is to be reached between Obama and Republicans, the chained CPI idea could be one building block of a deal, but Collender cautions “only if (new tax) revenues are part of the equation. Obama — and congressional Democrats won't agree to that without getting the tax changes they want in return.”

And Democrats signaled displeasure with the president’s inclusion of changes in Social Security. Congressional Progressive Caucus co-chairs Reps. Raul Grijalva, D-Ariz., and Keith Ellison, D-Minn., said Friday that when dealing with the Republicans, Obama “should not try to bargain for their good will with policies that hurt our seniors….”

They said any cuts in Social Security benefits “could be disastrous for our economy because the recession has led more seniors to rely to Social Security for income.”

Meanwhile, the discouraging employment data released Friday underscored the continued need for more federal revenue. With faster economic growth and more jobs being created, federal revenues would begin to return to their normal levels and would help reduce deficits and slow the growth of the federal debt.

There was some good news on the revenue front Friday as the CBO reported that individual income and payroll tax revenues increased by 12 percent in the first six months of the fiscal year, compared to the same period in the prior year. This was partly due to the tax increase that Obama signed into law.

From 1997 to 2007, federal revenues averaged 18.5 percent of gross domestic product. In fiscal year 2012, revenues were only 15.8 percent of GDP and the Congressional Budget Office estimates they will amount to 16.9 percent of GDP in the current fiscal year.

Some veteran budget observers look back on the year-end fiscal cliff deal Obama struck with GOP leaders as a lost opportunity to get more revenue.

“The amount of revenue that was generated by the deal was far lower than the president and the Democrats had hoped for, and even lower than the amount the Republicans seemed willing at various times to put on the table,” former CBO director Robert Reischauer noted right after Obama signed the tax increase into law.

The deal Obama agreed to at the end of 2012, Reischauer said, will signal that higher income tax rates “are off the table in the future” – which he said was “very damaging” since higher revenues will be needed over the next few decades.

One interesting new element in Obama’s proposal leaked Friday is sure to spark more discussion in the weeks ahead: limiting tax sheltered retirement accounts.

A senior administration official said the budget plan will include a proposal to prohibit individuals from accumulating over $3 million in Individual Retirement Accounts (IRAs), 401k accounts, and other tax-preferred retirement accounts.

Under current law, some Americans can accumulate millions of dollars in their retirement accounts, which this official said is “substantially more than is needed to fund reasonable levels of retirement saving.”

This proposal is yet another indication that the relentless search for more revenue continues.


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