Obama’s budget gambit: Return of the 'grand bargain'?

For the first time, President Obama has proposed changes to Social Security and Medicare in his annual budget proposal – triggering outrage on the left and grudging credit from some Republicans.

Nobody is completely happy with the president’s budget, including Mr. Obama himself, as he made clear in his Rose Garden remarks Wednesday when he spoke of changes to entitlements.

“I don't believe that all these ideas are optimal,” the president said, not even referring to Social Security by name, “but I'm willing to accept them as part of a compromise if and only if they contain protections for the most vulnerable Americans.”

Despite the tone of trepidation, Obama is taking a bold step along the path of the last Democratic president, Bill Clinton, who saved his presidency – and won reelection – by engaging in a technique known as “triangulation”: Offer an olive branch to your political opponents, anger your base supporters, and thereby place yourself somewhere in the middle as a launch point for negotiations.

Obama’s gambit comes partially in a concept called “chained CPI” – an alternative way of calculating the Consumer Price Index, a.k.a. inflation, that reduces the annual cost-of-living increase that seniors receive in Social Security. The budget includes protections for the very elderly and others who rely on Social Security for long periods of time, the White House says. All told, the switch to chained CPI would save the government $230 billion over 10 years.

Obama also proposes cuts in payments to Medicare beneficiaries and providers, while maintaining they will not undermine the “ironclad guarantee” that Medicare represents.

Political analysts say Obama has the political wiggle room he needs to make this kind of offer. He has been reelected, and he has already shown that he can make a move against his core supporters without alienating them altogether. One example came during the negotiations on health-care reform in Obama’s first term, when he gave up on the so-called “public option,” or government-run insurance.

"Obama is a post-Clinton liberal,” says Julian Zelizer, a professor of history and public policy at Princeton University. “He’s a liberal on social policy, he believes in government, and he has embraced the idea of long-term deficit reduction as something that’s as Democratic as it is Republican.”

By proposing technical fixes to Social Security and Medicare that the Republicans support, Obama is trying to jump-start talks toward a “grand bargain” on deficit reduction. If successful, that would represent a big step away from the sense of fiscal crisis that has permeated Washington the past two years.

The timing for Obama’s gambit may be optimal: He remains reasonably popular, and the Republicans are back on their heels, following last November’s election defeat.

In his response to Obama’s budget, Republican House Speaker John Boehner mixed a bit of praise in with the criticism.

“While the president has backtracked on some of his entitlement reforms that were in conversations that we had a year and a half ago, he does deserve some credit for some incremental entitlement reforms that he has outlined in his budget,” Mr. Boehner said.

Still, Republicans criticized the president for producing a budget that never reaches balance. The House Republican budget gets to balance in 10 years, through austerity measures.

Instead, Obama followed his tradition of calling for “investments” – read: spending – on infrastructure and education, funded in part by tax increases on the wealthy. His $1.8 trillion in proposed new savings and tax revenue during the next decade would in part replace the “sequester,” the $1.2 trillion in automatic spending cuts that went into effect March 1. 

“For years, the debate in this town has raged between reducing our deficits at all costs and making the investments necessary to grow our economy,” he said. “And this budget answers that argument because we can do both. We can grow our economy and shrink our deficits.”

The president justified this approach with a bow to the Clinton era.

“In fact, as we saw in the 1990s, nothing shrinks deficits faster than a growing economy,” he said. “That's been my goal since I took office, and that should be our goal going forward.”