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Obama Budget Said to Include Earlier Debt Reduction Offer

Photographer: J. Scott Applewhite/AP Photo

President Barack Obama and House Minority Leader Nancy Pelosi leave a meeting with House Democrats at the Capitol, in Washington, on March 14, 2013. At far left is Rep. Frederica Wilson, D-Fla., with Rep. Terri Sewell, D-Ala., second from left. Close

President Barack Obama and House Minority Leader Nancy Pelosi leave a meeting with... Read More

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Photographer: J. Scott Applewhite/AP Photo

President Barack Obama and House Minority Leader Nancy Pelosi leave a meeting with House Democrats at the Capitol, in Washington, on March 14, 2013. At far left is Rep. Frederica Wilson, D-Fla., with Rep. Terri Sewell, D-Ala., second from left.

The White House is telling lawmakers that President Barack Obama’s budget plan will mirror previous deficit-cutting proposals, which included changing the calculation for Social Security cost-of-living increases and tax brackets.

The budget plan, set for release April 10, will track the offer on spending cuts and revenue increases that Obama made to House Speaker John Boehner of Ohio as part of an end-of-the-year deal on expiring tax cuts, according to a person familiar with the discussions who asked for anonymity because the budget details haven’t been made public.

That plan included a new inflation gauge that would effectively reduce cost-of-living payments for Social Security beneficiaries, a measure that is sure to draw opposition from many Democrats. It also proposed using the calculation for adjusting income tax brackets, which would mean higher payments for many taxpayers.

The administration wouldn’t immediately confirm details about the president’s spending plan or whether he would seek to make the so-called chained Consumer Price Index the benchmark for Social Security increases or adjusting tax brackets.

President’s Priorities

While Obama’s fifth budget proposal stands little chance of becoming law because of opposition from Republicans who control the House, it emphasizes the president’s priorities and will set the stage for talks with Republicans on a broader debt-reduction package.

For the first time, Obama is poised to incorporate specific entitlement benefit cuts in his official budget, an attempt to signal to Republicans that he still wants to cut a deal on reducing the deficit.

Republicans have said the president needs to take the lead if there’s any chance to address the biggest long-term driver of the debt, Medicare spending, because Democratic lawmakers have resisted trimming entitlement-program costs.

White House press secretary Jay Carney said at an April 1 briefing that Obama remains open to using chained CPI for Social Security as a way to cut the program’s cost. “That offer remains on the table, as we’ve made clear repeatedly since then,” Carney said.

Two Goals

Changing the inflation calculator potentially provides Obama and congressional Republicans with a way to accomplish their goals. Obama is seeking more revenue through tax-code changes, while Republicans are pushing to trim entitlement programs such as Social Security in cutting spending.

The change in calculation would make the annual adjustments smaller than they are now. As a result, more income would be subject to higher income tax rates. The administration in its earlier proposal estimated that would bring in additional tax revenue of about $100 billion over 10 years.

In 2020, the change would raise taxes for 78.3 percent of households by an average of $124, according to the nonpartisan Tax Policy Center in Washington. Taxes would increase for 98 percent of households making between $75,000 and $100,000 a year.

Boehner’s spokesman said House Republicans will resist attempts to raise tax revenue to cut the deficit, which was $1.1 trillion in fiscal 2012.

Republican Response

“The president got his tax hikes already,” the spokesman, Michael Steel, said in an e-mail. “It’s time to deal with Washington’s spending problem, so we can get our economy moving again and create more American jobs.”

Switching to the alternative inflation yardstick for Social Security would save $130 billion, according to the plan Obama offered last year.

Obama hasn’t included the changes to Social Security and tax bracket calculations in previous spending blueprints and might still leave them out, according to a person familiar with White House discussions, who asked for anonymity to talk about the internal debate.

The propect of such a change already is generating opposition.

“Millions of working people, seniors, disabled veterans, those who have lost a loved one in combat, and women will be extremely disappointed if President Obama caves into the long standing Republican effort to cut Social Security,” Vermont Senator Bernie Sanders, an independent who caucuses with Democrats, said in a statement today.

Market Reaction

While lawmakers wrangle over the budget, investors have focused on an improving economy. The benchmark Standard & Poor’s 500 Index (SPX) has risen about 9 percent so far this year. The S&P added 0.3 percent at 3:12 p.m. in New York, rebounding from yesterday’s 1.1 percent retreat from a record.

The Bloomberg Consumer Comfort Index increased to minus 34.1 in the week ended March 31 from a six-week low of minus 34.4 in the prior period. The comfort readings from January through March were the strongest on average of any first quarter since 2008 as a pickup in hiring and record stock prices helped consumers overcome an increase in the payroll tax.

Even though the president’s budget is more than two months late, because of tax-and-spending-legislation at year’s end known as the “fiscal cliff,” Pat Griffin, former President Bill Clinton’s lobbyist in Congress, said the timing “may be just right.”

“If there’s one more chance this year to ignite this conversation, this would be it,” Griffin said.

Dueling Budgets

That’s because House Republicans and Senate Democrats have passed non-binding budget resolutions that are far apart, and there’s little likelihood they will be reconciled. Obama plans to dine with Senate Republicans the evening of April 10, just hours after his budget plan is released.

The chained CPI was a centerpiece of failed negotiations between Obama and Boehner over a “grand bargain” budget deal in the summer of 2011, and it was also the key tradeoff Obama was willing to make as part of the so-called fiscal cliff negotiations in December in the context of a broad debt- reduction package.

Unlike the consumer price index, chained CPI adjusts for consumers’ tendency to switch products when prices rise. In that way, economists say it is a more accurate measure of the cost of living for purposes of setting tax policy and Social Security benefits. The regular CPI tends to overstate inflation because it doesn’t adjust for consumer behavior, economists say.

A concern for Democrats is whether a change can be made in a way that would protect low-income and other vulnerable groups of senior citizens. Obama’s 2010 debt commission recommended instituting a flat-dollar benefit “bump-up” for Social Security recipients who have been receiving benefits for 20 years, and a minimum benefit for lower-income beneficiaries.

Another major concern for Democrats and Republicans will be protecting disabled veterans. That could be addressed by enhancing Social Security disability benefits or increasing certain credits for low-income taxpayers.

To contact the reporters on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net; Roger Runningen in Washington at rrunningen@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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