Friday, April 05, 2013

Here comes Obama's new centrist budget...much like his old centrist budget

To progressives, President Obama's inclusion of chained-CPI in his 2014 budget looks like another case of Obama moving the goalposts on his opponents' behalf. Yesterday, Jared Bernstein offered this forlorn hope:

No chained CPI!  No $100 billion more in NDD (non-discretionary spending) cuts!  These were both Obama offers to Rep Boehner in a grand bargainy sort of deal during the fiscal cliff squabble in December.  Neither should be on the table in the budget.  To put them there would be to meet the R’s way too far on their side of the field for no good reason.

I think I understand the strategy that says “don’t worry, progressives…we won’t enact either of these measures unless we get significant revenues.  And that’s unlikely.”

Tru dat.  But my game theory says keep your offers off the table until you’ve got their offers.  The problem doing it the other way is that you’re allowing the negotiations to start where you want them to end.  There’s the risk that the bargaining starts with with the stuff you’ve put on the table and goes down from there.  So the R’s say, “OK, we’re willing to nudge on revenues, but we’re going to need more cuts—beyond what you’ve already given us in the budget.”

 You could tell when you read that that Bernstein knew that Obama was going to do it.

If, however, the political goal is to make it look like Obama is moving far further in Republicans' direction than he has actually moved -- in effect leveraging their caricature of him as someone unwilling to reform Medicare and Social Security -- then he is getting a lot of rhetorical bang for the buck. " “Now THIS is a real budget. … THAT’S a real budget … exciting … a place to start.”

A "real budget" indeed: Pretty much the same as Obama's last budget, with the exception of chained-CPI, which everyone knows Obama put on the table last December. More subtle than Scarborough's displayed ignorance is Jackie Calmes' rhetorical merger of old proposed entitlement cuts with new (formally) proposed entitlement cuts:

President Obama next week will take the political risk of formally proposing cuts to Social Security and Medicare in his annual budget in an effort to demonstrate his willingness to compromise with Republicans and revive prospects for a long-term deficit-reduction deal, administration officials say.
Two for the price of one...last year's budget included a proposed $350-odd billion in cuts over 10 years to federal healthcare spending. According to Calmes, this year's budget will include  $400 billion in reductions from health programs. Since the projected ten-year effect of any given proposed cut always rises every year, thanks to inflation and population growth, that suggests really minimal additional tweaks. Calmes' brief overview bears that impression out:
In Medicare, the savings would mostly come from payments to health care providers, including hospitals and pharmaceutical companies, but Mr. Obama also proposes that higher-income beneficiaries pay more for coverage.
That description fits the Medicare proposals in Obama's 2013 budget. For example:
Increase Income-Related Premiums Under Medicare Parts B and D.

Under Medicare Parts B and D, certain beneficiaries pay higher premiums as a result of their higher levels of income. Beginning in 2017, the Administration proposes to increase income-related premiums under Medicare Parts B and D by 15 percent and maintain the income thresholds associated with income-related premiums until 25 percent of beneficiaries under Parts B and D are subject to these premiums. This will help improve the financial stability of the Medicare program by reducing the Federal subsidy of Medicare costs for those beneficiaries who can most afford them. This proposal will save approximately $28 billion over 10 years (pp 34-35).
Also unchanged in the new budget: Obama's chief proposed vehicle for getting the remainder of the new revenue target that he had reduced just before the failure of grand bargain negotiations in December to $1.2 trillion over ten years (he got half of that with the income tax rate hike on household incomes over $450k). That is, capping the value of all personal deductions at 28% of the amount deducted from taxable income. That was projected to raise just short of $600 billion when Obama proposed it in his 2013 budget. As I've noted before, it will now raise less, since that projection was based on the assumption that marginal rates would rise for households earning over $250k, and Obama agreed to rate hikes that kicked in only at $450k.  But part of that shortfall is made up by the projected extra revenue gleaned from chained-CPI, which reduces the pace at which tax brackets are adjusted upward for inflation.  

Chained-CPI may breach a taboo, reducing Social Security benefits and thus moving them in the wrong direction, as progressives are now aggressively asserting. But it is a pretty modest benefit change -- reducing benefits by an average of something like 3% over ten years -- and Obama's budget will propose offsetting its effects on low-income seniors.  It also includes a modest stealth tax hike, which has to make it tempting for Obama. It is a much better concession than raising the Medicare eligibility age, which Obama was reportedly willing to do in his summer 2011 negotiations with Boehner.

Say what you like about Obama's negotiating skills -- and I fully subscribe the to the CW that they're terrible -- the basic framework of his budget proposals has undergone only minor and incremental tweaks since the deficit reduction wars kicked up in earnest with the advent of the 112th Congress.  And his negotiating strategy does have a certain internal consistency.  To progressives like me, it looks like Obama abjured his point of maximum leverage, the expiration of the Bush tax cuts, settling at that point for half an (already reduced) revenue loaf and enabling the GOP to inflict the sequestration cuts on us. In most media presentations, however, including those on the right, Obama "won" in January by getting that modest revenue hike and is now "moving to the center" by formally proposing what he's long had on offer.

Once again, then, he is positioned as the moderate, compromise-seeking centrist seeking to deal with an extremist opposition, and the weakness that some progressives see is not, I think, the majority view. In a sense, Obama actually benefits from the cries of the Very Serious People that he meet Republican intransigence with ever-more concessions: they cover the weakness in his congenital propensity to do just that.

Jared Bernstein sees the latest preemptive concession as an attempt to bypass the GOP leadership and work with a handful of Republicans who will concede modest revenue cuts to lock in the level of spending cuts mandated by the Budget Control Act while mitigating the meat-ax effects of the sequester.  The effect of putting chained-CPI on paper may be to lessen the amount of revenue Republicans will have to concede to get Obama to sign off on his proposed cuts.

Eventually, I suspect that Obama will get the rough equivalent of the crappy deal that evaporated in July 2011: barely more than $800 billion in new revenue over ten years (perhaps no more, allowing for two years of inflation and population growth) paired with somewhere north of $2.5 trillion in spending cuts over the same period, including the entitlement trims now on the table. Chained-CPI yields approximately $100 billion in new revenue (rounded up, I suspect - that estimate has been creeping northward); perhaps the GOP will ultimately toss him another $100-200b.

UPDATE: I have long wondered how much the value of Obama's proposed 28% deduction cap, estimated at $584 billion over ten years in his 2013 budget, would be reduced by his failure to raise marginal income tax rates on those earning $250--450k as proposed in 2013. My working assumption was that since the January tax hike on incomes over $450k raised about three quarters of the income projected for a hike over $250k, the deduction cap also would raise about three quarters of the amount originally projected. Today's WSJ indicates that that is about right:
The president's plan would raise about $423 billion over 10 years, according to a recent congressional estimate obtained by Senate Republicans.

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