President's debt offer risky but could be win-win

[July 22, 2011]  WASHINGTON (AP) -- It's hard to know which is more surprising: a Democratic president pushing historic cuts in spending, including Social Security and Medicare. Or a Republican-controlled House refusing to accept the deal and declare a huge victory for long-sought GOP goals.

Political orthodoxy has been turned on its head ever since President Barack Obama stepped up his call for a bipartisan "grand bargain" to raise the national debt ceiling and avert a default on U.S. obligations. The deal would include $4 trillion in deficit reduction over 10 years, mainly through steep spending cuts but also including up to $1 trillion in new federal revenue.

Those are far bigger targets than typical budget negotiations. And the spending cuts would seem more appropriate for a Republican president than a Democrat.

Some pundits and political insiders say Republicans should leap at the offer. But there's a hitch: The new revenue -- mainly from overhauling the tax code and lowering rates by eliminating or limiting a broad swath of loopholes, deductions and tax breaks -- presumably would violate a no-net-tax-hike pledge that scores of Republican lawmakers have signed.

Mostly for that reason, House Republicans so far have rejected Obama's overture, despite the interest shown by Speaker John Boehner. Some pro-Republican analysts seem bewildered.

Obama's offer of big spending cuts would have "brutally fractured the Democratic Party," and congressional Republicans probably "will come to regret this missed opportunity," wrote David Brooks, a moderate-to-conservative columnist for The New York Times.

Such comments lead to a question: Why did Obama make the overture, and how might it affect him and his party as he ramps up his re-election campaign?

The consensus answer, based on interviews with key players in Congress, the White House and elsewhere, is that Obama may be maneuvering himself into a win-win political position for 2012, although it's not without risks.

If Congress approves a version of the "grand bargain," Obama can run next year as a president who began taming the runaway deficit, extracted concessions on higher taxes from Republicans and put Medicare and Social Security on a possible path toward greater stability.

If congressional Republicans block the plan -- and especially if the Aug. 2 debt ceiling deadline is missed -- Obama might persuasively argue that he tried his best to strike a compromise, at some political risk to himself. Recent polls suggest that strategy is working, as Americans seem disgruntled with the Republicans' dug-in opposition.

Either way, Obama can appeal to the all-important independent voters next year, portraying himself as above the bitterly partisan House and Senate squabbles. Polls show that independents are deeply unhappy with Congress. Even if Obama's ratings are not spectacular, he fares better.

A CBS-New York Times poll found that 68 percent of independents think an agreement on spending and the debt ceiling should include "a combination of both tax increases and spending cuts," which is the president's position. Fifty-five percent of Republicans in the survey hold that view.

Regardless of what happens to his plans to phase in tax and spending changes in future decades, Obama would be on record as pushing dramatic changes to government finances and Democratic traditions.

"We have the opportunity to do something big and meaningful," he said in an op-ed for USA Today. "I'm willing to cut historic amounts of spending in order to reduce our long-term deficits."

His proposals include:

• Increasing the eligibility age for Medicare recipients from 65 to 67 by 2036.

• Raising co-pays and premiums for Medicare beneficiaries based on their incomes. Such "means testing" already exists; the president's proposal would expand it.

• Decreasing the size of annual cost-of-living increases in Social Security benefits.

Obama first talked of tackling Medicare, Medicaid and Social Security spending in his State of the Union speech in January. After a budget stalemate nearly shut down the government, he revived the talk in April.

In a speech at George Washington University, the president offered the outlines of a $4 trillion deficit reduction plan over 12 years. It included reductions in Medicare and Medicaid spending of $340 billion by 2021, or $480 billion by 2023.

Initial deficit-reduction talks with a bipartisan group of lawmakers and led by Vice President Joe Biden focused on a smaller number -- $2.4 trillion over 10 years. That was Boehner's price for an increase in the debt ceiling of a similar amount. The plan included modest changes in Medicare and Medicaid. Democrats also envisioned closing some tax loopholes and limiting some deductions.

When conservative Republicans' objections to tax increases prompted GOP negotiators to back away, Obama resumed talk of a "big deal" of about $4 trillion.

White House officials say Obama concluded that if both sides wanted to take on each other's sacred cows -- Republicans' opposition to tax increases, and Democrats' support for entitlement programs -- then why not seek a major deal with a long-term impact?

Republicans, and some Democrats, complain that Obama's proposals are maddeningly vague. Some suspect he's laying a trap for Republicans with gauzy proposals and ample chances for Democrats to wriggle out of their obligations in the coming years and decades.

"I don't know what the $4 trillion deal is," said Sen. Lindsey Graham, R-S.C. "These cuts don't have any definitions," he said, nor do the proposed revenue hikes.

Obama also risks alienating his liberal base by even entertaining such ideas as entitlement cuts in broad terms. His advisers believe the potential gain in support from independent voters is worth angering some liberal stalwarts.

Liberal leaders, including labor unions and House Democratic leader Nancy Pelosi, have been relatively quiet so far. They say the entitlement programs' benefits must be protected, and revenues must be raised, but they've avoided ultimatums.

Congressional insiders say Pelosi and her allies realize that, thus far, Republicans are taking the chief blame for appearing obstinate. If the "grand bargain" approach fails, liberal Democrats can appear to have been more open-minded while avoiding hits to their favorite programs.

If the grand bargain approach succeeds, however, liberals will fight to minimize cuts in entitlement benefits.

Other components of Obama's offer include:

• Limiting the growth in federal health care costs to national economic growth as measured by the gross domestic product, plus one-half of 1 percent.

• Giving a strengthened Independent Payment Advisory Board authority to force Medicare cuts if costs rise beyond certain levels. Lately the administration has been playing down the agency as a "backstop."

• Finding about $200 billion in savings over 10 years through cuts to Medicare and Medicaid providers, including drug companies, hospitals, home health agencies and nursing homes.

Past efforts to include such savings have run aground. The most notable example is a 1997 law that requires a cut in physician fees, a requirement that Republican and Democratic Congresses have routinely postponed.

[Associated Press; By CHARLES BABINGTON and JIM KUHNHENN]

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.