Obama offers up Social Security cuts

President Obama is pressing congressional leaders to consider a far-reaching debt-reduction plan that would force Democrats to accept major changes to Social Security and Medicare in exchange for Republican support for fresh tax revenue.

At a meeting with top House and Senate leaders set for Thursday morning, Obama plans to argue that a rare consensus has emerged about the size and scope of the nation’s budget problems and that policymakers should seize the moment to take dramatic action.

As part of his pitch, Obama is proposing significant reductions in Medicare spending and for the first time is offering to tackle the rising cost of Social Security, according to people in both parties with knowledge of the proposal. The move marks a major shift for the White House and could present a direct challenge to Democratic lawmakers who have vowed to protect health and retirement benefits from the assault on government spending.

–Washington Post

As I indicated in November after the mid-terms, I saw this as likely. But let’s review what the President put in his budget in February. At the time, I wrote:

The headline the Obama Administration wants voters to focus on is this: Barack Obama budget to cut deficit by $1.1 trillion. That’s how the Daily Telegraph put the budget – and that’s exactly how the Obama people wish the U.S. media would put it.

The key, however, is that no one actually wants to cut the items in the budget which account for the lion’s share of spending: defense, Social Security, and Medicare. Now, if the President were a lame duck or if this were the first Congressional term in his tenure, he could take these issues on. But, cutting any of these areas is not likely to win voters. So, the President is forced to cut more deeply into non-military discretionary spending in order to position himself as fiscally responsible.

This is causing a negative reaction in progressive circles…

The attacks from both sides make Obama look like a centrist – exactly what he is looking for. Right now, as far as the Clintonistas in the White House are concerned, 2010 was a replay of 1994. And that mandates the same tack to the center in order to win re-election.  My view is that this could work for Obama if the economy holds. At this point in the economic cycle, I believe 2012 is going to be more of a referendum on the economy than specific policy prescriptions.

–Initial Thoughts on the Obama Budget

Now that the Republicans are looking for cuts, the President has gone further and has offered social security up – as expected.

Just after the mid-terms, I said the following about Obama’s economic agenda for re-election:

Here is what I anticipate the Administration’s tone to be on specific policy agenda items.

1. No Foreclosure moratoria or bank holidays. The Administration has now moved into re-election mode. Uppermost in their mind is the need to demonstrate that they have taken the right policy steps on the economy all along. And this means making the recovery stick. Foreclosure moratoria would be a threat to this number one agenda item and will not be pursued.
2. Re-instituting the Bush tax cuts. Again, the economy is uppermost in the Obama agenda now. Therefore, he will want to demonstrate his ‘for-the-people’ bona fides by making the technical recovery stick in a way that benefits most voters.  Income tax cuts are the easiest way to do this given the way that the economic gains of GDP growth have been going disproportionately to upper-income households. Republicans have already warned they will reject any attempts to push through cuts that don’t also include upper income individuals using a small-business angle. The President, worried about this anti-business rhetoric will accede to across-the-board cuts, if only temporarily.
3. Discretionary spending will be cut. The tax cuts will leave the Obama economic agenda open to criticism from deficit hawks. He will look to pre-empt this by cutting discretionary spending. These cuts will not be UK-style austerity because he has already indicated this is not something he intends to do.
4. Defense spending will be spared. In US voters’ minds, the war on terror is integrally related to defense spending. Cutting defense spending means being soft on terror and this ‘soft on terror’ label is something Obama wants to avoid for the 2012 election. So he will not cut defense. He has already shown us he intends not to be soft on terror given his recent terror alert announcements, his stances on electronic mail privacy, executive privilege to defend Bush era programs, and the President’s own terrorist assassination list.
5. Offering up Social Security and Medicare as Sacrificial Lambs. The combination of modest discretionary cuts and no defense cuts still leaves room for an assault by deficit hawks. So, the Obama people can only pre-empt this by offering up long-term budget deficit reduction through Social Security and Medicare cuts as envisaged by their Deficit Reduction Commission’s recommendations.
6. Social agenda items are dead. The President has acknowledged that healthcare reform took a political toll on Democrats. He will shy away from similarly divisive social issues like immigration reform in his second term and focus on the economy.

That is my read of what is likely to occur.

And, this is exactly what we are seeing. As I indicated above eight months ago, Obama initially went with discretionary cuts. However, Obama has moved to social security because deficit hawks have forced this move.

Again, the question is the economy. If it improves from here, the President gets re-elected. If the debt ceiling and budget cut debates tank the economy, the Republicans will get the blame and Obama wins in that case too. If the economy sours without a debt default or massive and immediate cuts, then Obama gets the blame and the Republicans will take the White House.