Obama Budget Is Meant to Draw the G.O.P. to the Table

By his gamble on Wednesday in proposing budgetary concessions to Republicans on Social Security, created by President Franklin D. Roosevelt in 1935, and Medicare, the legacy of President Lyndon B. Johnson, Mr. Obama has provoked angry supporters on his left to ask whether he is a progressive at all. “President’s Budget Breaks Promise to Seniors” was the headline on an e-mail statement from Representative Alan Grayson, a liberal Democrat of Florida.

But to Mr. Obama, making these changes in the nation’s most expensive domestic programs is more progressive than allowing them to overwhelm the budget in future years. A growing faction of liberals and moderate Democrats began arguing several years ago that unless the party agrees to changes in the entitlement benefit programs — which are growing unsustainably as baby boomers age and medical prices rise — then the spending will swamp all other domestic programs that help the poor, the working class and children.

It has been evident from his first months as president that the pragmatist in Mr. Obama made him sympathetic to this camp. In 2009, he considered a change in cost-of-living increases for Social Security until he was vetoed by Democratic leaders in Congress. But now in his fifth budget and the first of his second term, he has made his brand of pragmatic liberalism official.

More broadly, Mr. Obama has taken the party’s internal debate public to a degree unseen since President Bill Clinton in the 1990s forced a liberal Democratic Party onto a centrist “third way.” Until now, attention has focused on the Republican Party and its postelection battles within its larger divisions over defining conservatism.

Liberal and labor groups had mobilized in opposition to Mr. Obama even before the budget’s release, with activists protesting outside the White House on Tuesday and, on Wednesday, complaining on conference calls with reporters. Democratic leaders were muted in their support for the president’s plan, and were privately troubled that Mr. Obama had made his fiscal overture to Republicans without any sign that in return they would — as he demanded — accept both higher taxes on the wealthy and job-creating investments for public works, education and research.

Speaker John A. Boehner did seem to temper slightly his earlier dismissiveness of Mr. Obama’s proposals, which reflected the last compromise offer that Mr. Boehner made to the president in December before their private deficit-reduction negotiations collapsed. Mr. Obama “does deserve some credit for some incremental entitlement reforms that he has outlined in his budget,” Mr. Boehner told reporters.

Perhaps more important, Mr. Obama’s budget overture drew cautious compliments from some Senate Republicans, including several who were among the dozen Mr. Obama earlier invited to dinner on Wednesday in the intimacy of the White House family dining room.

People familiar with internal White House deliberations say that Mr. Obama himself recently made the decision to incorporate the concessions into his official budget, after Senate Republicans at a dinner with him a month ago urged him to take such a step — one that would divide his party — as a sign of his seriousness in a budget compromise.

The main new element of Mr. Obama’s budget is his proposal, offered previously in private negotiations with Mr. Boehner, for a new cost-of-living formula that would reduce Social Security benefits. On the spending side, Mr. Obama wants to spend $66 billion over 10 years to help states make prekindergarten available universally, paid for by higher taxes on tobacco products.

“The American people deserve better than what we’ve been seeing: a shortsighted, crisis-driven decision making like the reckless across-the-board spending cuts that are already hurting a lot of communities out there, cuts that economists predict will cost us hundreds of thousands of jobs during the course of this year,” Mr. Obama said in the Rose Garden as his budget was released.

“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 added. “And this budget answers that argument, because we can do both. We can grow our economy, and shrink our deficits.”

For the 2014 fiscal year, which begins Oct. 1, the federal deficit would be $744 billion, according to administration officials, down from the $973 billion shortfall projected for the current fiscal year, which would end four straight years of trillion-dollar deficits.

A $744 billion deficit next year would be equal to 4.4 percent of the total economy, as measured by the gross domestic product, down from a high of 10.1 percent of G.D.P. at the height of the recession. By decade’s end, the annual deficit would be 1.7 percent of G.D.P., officials said. That is a level that most economists consider reasonable in a growing economy, but annual deficits would begin to grow unsustainably thereafter, absent changes in law, as aging baby boomers drive up costs for federal benefit programs.

With unemployment still high, Mr. Obama also proposed some new spending for both short-term and long-term economic growth. He called for $166 billion over 10 years for repair and construction of roads and rails and to start an infrastructure bank to provide seed money for public works; aid to states to keep teachers and first responders on payrolls; and job training money. Republicans have blocked such proposals since 2011.

The 10-year budget plan would cut spending by about $1.2 trillion over that time to replace the indiscriminate across-the-board cuts, known as sequestration, that took effect March 1 when Mr. Obama and Republican leaders failed to agree on alternative deficit reduction measures.

His plan would have the effect of substituting reductions in so-called entitlement and mandatory benefit programs — whose growth is driving the future deficit projections, along with insufficient tax revenues — for the across-the-board reductions in the full range of domestic and military programs that have borne the brunt of deficit reductions to date, spawning cutbacks and furloughs in services as varied as air traffic control, Head Start and medical research.

Beyond his proposed spending cuts, Mr. Obama would reduce deficits by more than $600 billion further over a decade through additional tax increases on the wealthy and some corporations — roughly the same amount of tax increases that took effect on Jan. 1 when he and Congress agreed to end the Bush tax cuts on high incomes.

It is largely because of delays forced by those year-end negotiations, the administration has said, that Mr. Obama’s budget is reaching Capitol Hill two months late and after both the Republican-controlled House and the Democratic-controlled Senate have approved budget blueprints of their own. But those plans will be nearly impossible for the two chambers of Congress to reconcile, stoking White House hopes that Mr. Obama’s budget can provide an alternative path to a compromise.

By the administration’s calculation, the total $1.8 trillion in savings over 10 years, together with nearly $2.6 trillion in spending cuts agreed to since mid-2011, including reduced interest on a lower-than-projected debt, would bring the tally for deficit reduction to more than $4.3 trillion. That is about the 10-year goal that both parties have sought, but Republican leaders are resolved to oppose new tax increases, and their House plan calls for much deeper reductions in Medicare and in most other federal programs except the military.

“The question is, are Republicans going to be willing to come to us to do the serious things that they say are so important in terms of reducing our deficit,” said a senior administration official, who declined to be identified discussing the budget in advance of its release.

“If they refuse to include revenues in any deal, then there will be no deal,” the official said. “It’s that simple. Basically, what’s not going to happen is a deficit-reduction approach that does it all on the backs of the middle class and seniors.”

Under any of the plans, the federal budget for the next fiscal year would total nearly $3.8 trillion. But only one-third of that is so-called discretionary spending, split about evenly between domestic and military programs, which the president and Congress control annually. Most of the rest is spending for the entitlement programs — chiefly Medicare, Medicaid and Social Security — that automatically flow to beneficiaries unless the White House and Congress change them by law.

Mr. Obama would raise an estimated $583 billion in new revenue over a decade, mainly from two sources. Most of it would come from his proposal, made for the fifth time, to require that affluent taxpayers in higher tax brackets limit the deductions they take to the 28 percent rate; while Congress has ignored that idea in each instance, there are signs of growing support as lawmakers seek new ways to reduce deficits. The second change would impose his so-called Buffett Rule, requiring that people with annual taxable income above $1 million pay at least 30 percent in income taxes. That would raise about $53.4 billion over 10 years, according to the budget.

Additional new revenues would result from the proposed change in the government’s inflation formula for benefit programs and in the tax code’s brackets, though much of the debate over the proposal concerns Social Security benefits.

By moving from the standard Consumer Price Index to what is called a “chained C.P.I.” in 2015, the administration said the government would save $230 billion over 10 years, more than half of it through higher revenues and about $80 billion in reduced Social Security benefits. Mr. Obama also proposed to mitigate the impact on the poorest and oldest beneficiaries of Social Security and other benefit programs, including by exempting means-tested benefits from the change.

Mr. Obama and other administration officials have been emphasizing that he does not favor the change itself, but has included it in his budget along with other concessions that he made in his final compromise offer to Mr. Boehner in December before their budget talks fell apart. The president said he would not let the change become law unless Republicans in turn dropped their opposition to higher taxes on the wealthy.

Mr. Obama’s budget text noted that “most economists agree that the chained C.P.I. provides a more accurate measure of the average change in the cost of living” because it accounts for consumers’ flexibility in substituting cheaper items when prices go up. As it also noted, all recent bipartisan groups that have made recommendations for reducing long-term deficits, including the Simpson-Bowles Commission, have called for a switch to the chained C.P.I.

But liberal groups and other advocates for Social Security argue that it does not account for the sort of medical and drug costs that older Americans incur.

Ten-year projections in the administration’s budget track the fiscal imbalance that threatens in the coming decade, even if Mr. Obama’s proposed deficit reduction were to take effect.

The discretionary spending that covers most domestic and military programs would remain mostly flat, rising in dollar terms from $1.2 trillion in the 2014 fiscal year to about $1.4 trillion a decade later.

By contrast, Social Security benefits would increase from $860 billion next year, less than the projected $743 billion in payroll tax revenues for the program, to $1.4 trillion in the 2023 fiscal year — about equal to the entire amount of discretionary spending. Medicare and Medicaid – which would total $504 billion and $267 billion, respectively, next year – each would be nearly double those amounts in 2023. And interest on the federal debt, projected to be $222 billion next year, would be four times that in 2023.