This past Wednesday, President Obama unveiled a new budget plan to be sent to Congress. Obama’s proposal will also be considered next to other plans that have already been proposed, including, most notably, two separate competing plans drawn up by Representative Paul Ryan (R-Wis.) in the House and Senator Patty Murphy (D-Wash.) in the Senate.
Obama’s proposal, a ten year plan, calls for about $300 billion in new spending measures for employment and public works, along with major new taxes for the wealthy, and some entitlement reforms. The plan calls for, among other things, an extra charge of 94 cents added to the cost of a pack of cigarettes. (The proceeds from the charge will be used to help finance programs for preschool education, programs that Obama mentioned in the State of the Union Address earlier this year.) Besides this striking feature, the plan will also call for $700 billion in new tax increases for the wealthy which, not unexpectedly, does not please many Republicans in Congress. However, the President has also made several concessions to Republicans, such as reducing Medicare benefits for wealthy couples.
By far, however, the largest concession that the President’s plan offers the Republicans is to reduce Social Security by applying a chained consumer price index (chained CPI) that will be less generous in calculating benefits. (Along with Social Security, the chained CPI will index spending and taxes by tying them directly to the rate of inflation.) Compared to the old model of calculating benefits, the new formula will cause benefits to tick up at a much slower rate. This is expected to save the federal government about $130 billion within the next ten years.
This is a bold step by the President, as trimming Social Security is often considered untouchable by the members of his own party. Regardless, some Republicans in Senate are pleased with the concession and see this as a point where Republicans and Democrats can begin to compromise, though many Republicans advocate for higher Social Security costs. Other Republicans, however, do not see Obama’s move as a conciliatory measure and do not think that the concession really reforms entitlements. According to the Washington Post, Representative Ryan said that, “I don’t see this as fundamental entitlement reform as much as clarifying a statistic which does happen to save money.”
Obama’s proposal comes several days late – 65 days, to be exact. Usually in Washington, the president is the one to initiate discussions on the budget but, with several fiscal crises in the first quarter of this year, Obama’s initiative was delayed and the Senate and House of Representatives have already proceeded with their own initiatives.
Republican congressional plans generally seek to balance the budget within ten years and cut spending. Their counterparts, Democrat congressional plans, also seek to reduce deficit, but not to balance the budget. President Obama’s plan is no different in this respect. Regarding the level of national debt, one Republican plan from the House will level off debt within ten years, but another plan submitted by the Republican Study Committee would reduce it significantly. Obama’s plan, like other Democrat plans, will not reduce national debt significantly and will continue to let it to swell.
Budget talks in the upcoming weeks will continue to be debated. Continue to keep an eye on the news for further developments.