Entitlement reform takes step toward reality in new Obama budget

President Obama will unveil a budget Wednesday that includes reforms to entitlements such as Social Security and Medicare. The budget probably won't pass, but it points to a shift in the debate.

President Obama's new budget proposal, expected to be released Wednesday, is a sign that Washington's attitude toward entitlement reform is slowly shifting, with prospects for changes to Social Security and Medicare becoming increasingly likely – if not this year, then soon.

Mr. Obama's budget would adjust the way Social Security payments are stepped up for inflation each year, saving the federal government $100 billion or more over 10 years, while also finding $400 billion in cost savings from Medicare and Medicaid.

The budget is not likely to pass Congress. In fact, the president himself has warned that getting a deal done this year looks very hard. But his plan suggests that  some Democrats – who have been traditionally loath to tinker with entitlements – are acknowledging the mounting economic pressures.

The national debt has doubled during the past decade as a share of gross domestic product (GDP), and entitlements are seen as the primary driver going forward. As news reports from Greece to Illinois show the real consequences of debt, there is a new urgency in some quarters to make sure that federal entitlement spending doesn't spin out of control when the crest of the baby boomer retirement wave arrives.

While Rep. Paul Ryan (R) of Wisconsin has given fellow Republicans cover to talk about significant entitlement reforms the past few years, the prospect is still a daunting one for many Democrats. Yet some are beginning to position themselves not as defenders of the status quo, but as agents of responsible change.

“We’ll make the tough reforms required to strengthen Medicare for the future, without undermining the rock-solid guarantee at its core,” Obama said in a Saturday address.

Some prominent Senate Democrats, including Richard Durbin of Illinois, are also urging entitlement reforms. In a March interview with The Wall Street Journal, he said the cost of fixing the mismatch between spending and revenue for these programs gets harder the longer the nation waits to act.

Moreover, he noted that Democrats currently have the clout to shape the debate. “If we don’t do this now with a Democratic president in the White House, what’s going to happen next?” he asked. “Here’s a president who’s serious about it, who’s on our side philosophically, and now we can sit down with the Republicans and be in a stronger bargaining position.”

Republicans see the president's plan on entitlements as at least a step in the right direction.

“The president acknowledging that something must be done to prevent their looming bankruptcy is a positive development,” said Brendan Buck, press secretary for House Speaker John Boehner (R) of Ohio, in a statement released Tuesday.

The hurdles facing legislation remain large, however.  

Obama and Democrats want Republicans to back additional tax revenue as part of an entitlement-reform deal; Republicans respond that they’ve already let taxes rise on the rich (in the “fiscal cliff” deal struck in January), and that now it’s time to control spending.

Any entitlement reform vote would be difficult for many lawmakers in either party.

“Real Democrats don't cut Social Security benefits, period,” said Jim Dean, chairman of Democracy in America, which claims to have collected 2 million signatures opposing the president's Social Security reforms.

But the financial landscape has changed since Obama first campaigned for the presidency.

Early in 2008, the federal deficit for the year was projected to total 1.5 percent of GDP. “Mandatory” spending including Medicare, Medicaid, and Social Security totaled 11 percent of GDP. The forecast was that in 10 years, mandatory spending would be 12 percent of GDP.

The comparable Congressional Budget Office report for 2013 shows a likely deficit of 5.3 percent of GDP, mandatory spending of 13 percent of GDP, and the expectation is that mandatory spending will be 14 percent of GDP within a decade.

In short, the cost of entitlements is projected to drive the national debt steadily upward if unaddressed.

A majority of Americans appear eager to see compromise rather than stalemate in Washington. In a Heartland Monitor Poll in December, 59 percent of Obama voters said the president should compromise with Republicans in Congress as opposed to remaining firm in his views, and 54 percent of Romney voters said Republicans in Congress should compromise with the president on things like stabilizing Social Security and taming deficits.

Even as many Americans show great reluctance about potential changes to Social Security and Medicare, the public's desire for Washington to rein in the debt and deficits explains why entitlement reform is on the table – and in Obama’s budget – even if passage of legislation this year is far from assured.