U.S. Treasury Secretary Jacob J. Lew came under fire from Republicans and Democrats in the Senate over the Obama administration’s proposal to slow cost-of-living increases for people who receive Social Security benefits.
“Any reform of Social Security should be for the solvency of the program, not deficit reduction,” Senate Finance Committee Chairman Max Baucus, Democrat of Montana, said in a hearing today in Washington.
A linchpin of President Barack Obama’s $3.77 trillion budget is a proposal to switch to the so-called chained Consumer Price Index to calculate cost-of-living adjustments on Social Security, veterans’ pensions and tax brackets. Democrats say the plan will hurt retirees, while Republicans say it doesn’t go far enough to control spending.
“Overall Social Security spending over the next 10 years is virtually the same as it would be absent any of his proposals,” Senator Orrin Hatch of Utah, the top Republican on the panel, said in his opening statement. “This budget contains no substantive changes to Social Security.”
The proposed change would increase Social Security benefits more slowly and raise premiums for higher-income Medicare beneficiaries. Obama is putting those measures in his budget in exchange for more taxes on the wealthiest Americans to reduce U.S budget deficits.
Lew said switching to the chained Consumer Price Index isn’t the administration’s “first choice of policy.”
“We’ve been through two and a half years of negotiations where at every stage of the negotiations we’ve heard clearly that one of the things that will have to be in any deal, we’re told by Republican leaders, is chained CPI,” Lew, previously Obama’s chief of staff, told senators. “The president agreed to it, for the reasons that he wanted to deal and because it can be justified technically.”
Lew said the change wouldn’t cut benefits. It would make them grow more slowly than using the current inflation measure, accounting for the fact that people switch to cheaper substitutes when prices of some goods go up. He also said the proposal would only be accepted by the administration with a provision protecting those with minimal benefits.
The tone of the Senate hearing differed from the one before the House Ways and Means Committee earlier today, where Lew focused on explaining tax changes and talked about the opportunities for the parties to work together to eliminate “special provisions” and lower tax rates. One overarching issue is that Obama’s budget includes $1 trillion more in revenue than Republicans want over the next decade.
“That’s a legitimate disagreement,” Lew said. “We’re going to have to work our way through that.”
Representative Dave Camp, a Republican from Michigan and chairman of the Ways and Means committee, said Obama’s proposal doesn’t go far enough in rewriting the tax code and raises revenue that isn’t needed. Camp said he is willing to work with Lew and Obama on rewriting the tax system.
“The American people can do better than what the president’s proposing here,” Camp said.
Camp said a tax rewrite that doesn’t change individual taxes significantly isn’t sufficient. The administration has expressed interest in considering corporations and businesses that pay taxes through their owners’ individual returns together. The administration has been less specific about making fundamental changes to individual taxation.
Obama’s plan calls for capping top earners’ tax breaks, increasing estate taxes and raising taxes on private-equity managers’ carried interest. It also includes a change to the inflation gauge for benefits and tax brackets that would raise $100 billion in tax revenue, which Lew said Obama would consider as part of a broader deficit-reduction deal that has been elusive.
Republicans say any revenue from eliminating tax breaks should be used to reduce rates.
“I think there’s a path forward,” said Representative Kevin Brady, a Texas Republican. “I don’t think we ought to close loopholes so the government can spend more.”
Obama’s budget sent to Congress yesterday is part of an attempt intended to revive deficit-reduction talks.
Lew said the budget is based on a “conviction that an agreement is within our reach,” and “there is a path to a bipartisan agreement that moves the country forward.”
The president is proposing to replace across-the-board budget cuts known as sequestration with what White House budget officials say is $1.8 trillion in additional deficit reduction over 10 years that includes collecting more taxes from the wealthy and trimming some federal programs.
Lew said cutting spending too severely would hurt the nation’s economic recovery and expressed confidence lawmakers can reach a bipartisan agreement.
He rejected Republican efforts to balance the budget within 10 years, saying that families and governments are different.
“If you try to get there too fast,” he said, “you do more damage to the economy and you end up making less progress, not more progress.”