Obama’s budget proposal includes a mix of tax increases and benefit cuts in an effort to reduce government borrowing and spark the still-fragile economy. Obama says it is the kind of balanced approach that is necessary to tame runaway budget deficits.
But advocates from across the political spectrum are reminding the president of his past campaign promises.
“Clearly it will be up to members of Congress to set fiscal priorities that actually represent the needs of the average citizens they were elected to represent,” said Max Richtman, head of the National Committee to Preserve Social Security and Medicare. “The president’s budget is not the balanced plan promised to Americans before November’s election.”
Obama’s budget blueprint would increase taxes by $1 trillion over the next decade. Most of the tax increases would target wealthy households and corporations, though some, including a tax increase on cigarettes, would hit low- and middle-income families, too.
At the same time, Obama’s plan would trim benefit programs like Social Security and Medicare while adding new spending on infrastructure and early childhood education.
The most sweeping proposal is to adopt a new measure of inflation for the government, which would gradually reduce benefits and raise taxes at the same time.
Called the chained Consumer Price Index, the new measure would show a lower level of inflation than the more widely used Consumer Price Index. The change could have far-reaching effects because so many programs are adjusted each year based on year-to-year changes in consumer prices.
Starting in 2015, Social Security recipients, military retirees and civilian federal retirees would get smaller benefit increases each year. Taxes would gradually go up because of smaller annual adjustments to income tax brackets, the standard deduction and the personal exemption amount.
Most of the savings would come from Social Security. On average, the new measure would reduce annual cost-of-living adjustments, or COLAs, by 0.3 percentage points. This year, the COLA was 1.7 percent. Under the new measure, it would have been about 1.4 percent.
Obama rarely mentioned Social Security during his re-election campaign in 2012. But four years earlier, he was more forthcoming, and some liberal groups have been circulating the video evidence.
In a 2008 speech to AARP, Obama laid down this marker: “John McCain’s campaign has suggested that the best answer for the growing pressures on Social Security might be to cut cost-of-living adjustments or raise the retirement age. Let me be clear: I will not do either.”
On Wednesday, Obama said he was compromising.
“I don’t believe that all these ideas are optimal, but I’m willing to accept them as part of a compromise if and only if they contain protections for the most vulnerable Americans,” Obama said.
Some programs, including anti-poverty programs like food stamps and Supplemental Security Income, would be exempt from the new inflation measure. College Pell grants would also be exempt, as would benefit levels in the president’s new health care law.
There would also be provisions to reduce the impact on older Social Security recipients and those who receive Social Security disability benefits for at least 15 years.
In all, the new measure would reduce scheduled benefits by $130 billion over the next decade, according to administration estimates. It would raise taxes by $100 billion.
Low-income taxpayers would see the biggest tax increases because much of their income is not currently subject to the federal income tax.
Republicans note that Obama has repeatedly promised to spare low- and middle-income families from tax increases.
Obama’s proposal would increase the federal tax on cigarettes from $1.01 a pack to $1.95. The new cigarette tax would raise an estimated $78 billion over the next decade to pay for preschool programs for children.
The cigarette tax is popular among health care advocates who believe it provides the additional benefit of encouraging smokers to cut back or quit.
“Raising the price of tobacco products is one of the most effective approaches to encouraging people to quit and preventing kids from picking up the deadly habit in the first place,” said Christopher Hansen, president of the American Cancer Society’s Cancer Action Network.
The tobacco industry promptly criticized the proposal.
“We think it is blatantly unfair to single out adult tobacco consumers with another federal tobacco tax increase to pay for a broad, new government spending program claimed to have benefits for everyone,” David Sutton, a spokesman for Altria Group Inc., owner of the nation’s biggest cigarette maker, Philip Morris USA, said in a statement. “Moreover, excise taxes are regressive, disproportionately burdening middle- and lower-income consumers — the very same consumers who have already endured five years of a stagnant economy and high unemployment.”
The biggest tax increase in Obama’s budget would limit the value of itemized deductions for wealthy families. The limits would apply to all itemized deductions, including those for mortgage interest, charitable contributions and state and local taxes. They would also apply to tax-exempt interest, employer-sponsored health insurance and income exclusions for employee retirement contributions.
The proposal would raise $529 billion over the next decade.
Charitable groups have already mounted a lobbying campaign to oppose the limits because they are worried they would discourage wealthy people from donating. Obama has made similar proposals in previous budgets and received lukewarm responses from fellow Democrats. Most Republicans oppose them.
Associated Press reporter Michael Felberbaum in Richmond, Va., contributed to this report.
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