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The Budget Speech Obama Didn't Give

There are two paths to deficit reduction. One is slash and burn. We cut the investments that the country needs. We weaken the purchasing power of seniors. We end up with lower household income, a slower rate of growth and we get the grim satisfaction of budget balance in a weaker and poorer economy. That's the Republican way.

My way, the other path, is to invest in people, through expanded education at all levels, public infrastructure that creates a more productive economy, renewable energy, new technology, good jobs -- and to defend social benefits that are barely adequate as is.

We pay for some of this by restoring the pre-Bush tax levels on the most privileged among us, and some of it by having larger deficits than the austerity-mongers want, during the next two years. Then, as we restore growth, the deficit actually declines faster than it would if we pursued slash-and-burn, as the Republicans want.

I want to focus on one demand that I've specifically rejected -- cutting the deficit on the backs of seniors. This is bad policy and bad economics. Social Security has nothing to do with the deficit. It is currently in surplus. We can keep it strong by raising the cap on incomes subject to the payroll tax, and by getting unemployment down so that more people are on payrolls and contributing payroll taxes to the trust funds.

The Bush tax cuts, which are continuing for 99 percent of Americans, will reduce Federal revenues by some $2.8 trillion dollars over the next decade. If we had simply restored the pre-Bush tax rates on the top 2 percent, as I proposed in my negotiations with Republicans in January, instead of the top one percent as the final deal provided, that one change would bring in another $1 trillion dollars over that decade.

The proposed backdoor cuts in Social Security by a change in the annual cost of living adjustment have things backwards. First, that cut would bring in about $230 billion over a decade. It would be outrageous to cut benefits on seniors, most of whom depend on Social Security for more than half their total income, while still leaving in place the Bush tax cuts Americans making over $250,000 at a cost of a trillion dollars.

Second, if anything, older Americans face a higher rate of inflation than the rest of us, because they spend a larger share of their income on health care, where costs are rising far faster than average inflation. Seniors need a cost of living adjustment upward, not downward.

The right also wants to cut your Medicare. The fact is that Medicare has already been cut, by stealth. Under various formulas, the government pressures hospitals to admit patients in categories that result in more deductibles and co-pays. Bush-era legislation also prohibits Medicare from saving hundreds of billions of dollars by negotiating bulk discounts with Medicare.

So my budget gets Medicare savings without cutting benefits. We raise Medicare taxes on the wealthy, and we change the law to permit bulk drug discounts. This gets even more savings to the program than the Republicans are proposing.

Cutting Social Security and Medicare via the back door would be the easy way, but the wrong way, to get budget savings. And while the Republicans are pressing me for even deeper cuts, I would not put it past them to attack me for selling out our seniors even as they sought a deeper sellout.


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So as I work to put the economy back on the path to recovery and good jobs, you can count on me to veto anything that cuts Social Security and Medicare. There are two paths to recovery. One path cuts benefits that our people need, and fails to restore growth. The other path invests in our people, and gets the economy back on track. Let's have that debate.

Now why didn't Obama give that speech?

Three reasons, I think.

First, he is convinced that by putting an offer on the table that alarms his base, he will induce Republicans to do the same. But the evidence is that they will do just the opposite -- take his conciliation as a sign of weakness and harden their demands. They've already begun attacking him as betraying the elderly.

Second, the top economic and budget advisors he has appointed largely buy austerity economics, and have persuaded him that budget-cutting is the royal road to growth, or at the very least that financial markets (read Wall Street lobbyists) expect it.

Third, fiscal conservatives around Obama have sold the president on the idea that nipping and tucking Social Security and Medicare is an easy way to get a lot of money, and doing it by the backdoor will entail a lower political cost to him.

So far, he seems to have been proven wrong on all three assumptions. The Republicans haven't given an inch, the $270 billion in cuts undertaken so far this year under the January budget deal and the March sequester have cut the growth rate in half, and he is alienating core Democratic constituencies.

One unanticipated benefit of Obama's stance is new, explicit pressure on Democratic House and Senate members, as well as candidates considering running for president in 2016, to pledge not to cut Social Security and Medicare. It would be so much better if this Democratic president were behaving as a progressive leader right now.

Robert Kuttner

Robert Kuttner

Robert Kuttner is co-founder and co-editor of The American Prospect magazine, as well as a Distinguished Senior Fellow of the think tank Demos. He was a longtime columnist for Business Week, and continues to write columns in the Boston Globe and Huffington Post. He is the author of A Presidency in Peril: The Inside Story of Obama's Promise, Wall Street's Power, and the Struggle to Control our Economic Future, Obama's Challenge, and other books.

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