White House Weighing Entitlement Limits

March 29, 2013
The Wall Street Journal
Damian Paletta

WASHINGTON—The White House is strongly considering including limits on entitlement benefits in its fiscal 2014 budget—a proposal it first offered Republicans in December. The move would be aimed in part at keeping alive bipartisan talks on a major budget deal.

Such a proposal could include steps that make many Democrats queasy, such as reductions in future Medicare, Medicaid and Social Security payments, but also items resisted by Republicans, such as higher taxes through limits on tax breaks, people close to the White House said.

These measures would come as President Barack Obama continues his courtship of the Senate GOP in an effort to thaw tax-and-spending talks. The White House's delayed annual budget is scheduled to be released April 10, the same day Mr. Obama plans to dine with a group of Senate Republicans to discuss the budget and other issues.

Including entitlement curbs would be notable, as Republicans often have criticized the White House for offering such steps in private negotiations but never fully embracing them as part of an official budget plan.

People close to the White House believe a proposal to slow the growth rate of such benefits would use a variant of the Consumer Price Index to measure inflation. The new inflation indicator would cut overall spending by $130 billion, according to White House projections, and raise $100 billion in tax revenue by slowing the growth of tax brackets. The White House earlier called for an additional $800 billion or so in cuts on top of those resulting from the inflation adjustments.

"We and all of the groups engaged on this are starting to feel it may well be in the budget," said Nancy LeaMond, executive vice president at AARP, an advocacy group for seniors that opposes such changes.

The administration only began formally backing the idea as part of a larger budget agreement in late 2012. Senate Democrats, in a largely ceremonial vote, last week passed a measure that opposed the inflation-measure change. The vote isn't binding in future negotiations.

If the White House includes such measures in its budget, it is expected to insist that they be accepted or rejected as part of a "package" that includes revenue increases, in an effort to dissuade Republicans from seizing on the proposed spending cuts but discarding the proposed tax increases.

Many Republicans already have said they won't accept any new taxes as part of a deal to reduce the deficit, but others have said they would consider revenue-generating changes if spending cuts are large enough.

The White House and lawmakers already have agreed to roughly $2.5 trillion in deficit reductions spaced over 10 years, and the White House is seeking an additional $1.8 trillion through a combination of tax increases and spending cuts.

House Republicans are seeking more than $4 trillion in deficit reduction over 10 years, on top of the $2.5 trillion already agreed upon, solely through spending cuts.

White House allies say they expect the administration will make the case that the deficit-reduction measures can be implemented alongside new spending in areas like infrastructure, research and early-childhood education, items Mr. Obama outlined in his State of the Union address. But the new spending is likely to be offset by other budget changes, people familiar with the matter said, not by the deficit-reduction component.

White House officials recently said their revenue target in a budget deal is $600 billion to $700 billion in new taxes over 10 years. It couldn't be learned whether the White House would stick to that target in its budget. Senate Democrats, in their recent budget resolution, set the tax target higher, at close to $1 trillion in revenue over 10 years.

The White House declined to offer details of what would appear in the budget, but top officials have said negotiations with the GOP are near an impasse. "We are in a place now where it's difficult for us to reach an agreement when you have a firm bloc of Republican senators who are refusing to compromise," White House principal deputy press secretary Josh Earnest said.

Proposals for curbs on entitlements can bring both advantages and risks for the administration. Such measures, even if packaged with tax increases, could allow the White House to say it has taken steps to remain firmly engaged in bipartisan efforts to reduce the deficit.

"Having already taken so much off the table, anything less than these modest entitlement savings would fully evaporate what little credibility the president has left," said Brendan Buck, a spokesman for House Speaker John Boehner (R., Ohio).

But several liberal allies, some of whom advise White House officials, said Republicans could seize on the White House-endorsed spending cuts and try to implement them into law without any of the tax increases. That would put the White House in the uncomfortable position of opposing spending cuts it formally endorsed in its own budget.

<- Go Back