Obama faces budget dilemma

President Obama is facing a deepening dilemma about whether to abandon cuts to Social Security in his next fiscal blueprint, which is due out in March.

Obama touched the third rail of American politics last year when he proposed a new formula for Social Security and other entitlements that would result in benefits being cut over time.

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Now congressional Democrats and unions are ramping up their pressure on Obama to drop the proposal, which many fear could become an albatross for the party in the midterm elections.

“We want the president to make very clear that he is going to stand with seniors, that he is going to stand with disabled vets,” Sen. Bernie Sanders (I-Vt.) told The Hill. “Good politics follows from good policy. When you have a middle class that is struggling it is bad public policy to cut programs that people desperately need. That is just wrong.”

But abandoning the plan would be a major reversal for Obama that could erode his credibility and expose him to conservative attacks.

"If the president backtracks on this modest, sensible, bipartisan reform, it will eliminate any remaining shred of hope that he will deal seriously with America's deficit and debt,” a GOP leadership aide said Friday. 

In last April’s budget, Obama infuriated many Democrats by proposing to change the way the government calculates inflation. 

The shift to the chained consumer price index (CPI) would reduce Social Security and federal worker retirement benefits over time and increase some taxes by changing how tax brackets are calculated.  

Obama also proposed increasing means testing for outpatient and drug benefits under Medicare, a move that would increase some premiums.   

The president had proposed the changes in his last “grand bargain” offer to Speaker John Boehner (R-Ohio) during fiscal talks in late 2012. White House officials argued the inclusion of the cuts in the budget showed the president was willing to make tough choices, if only Republicans would accept a “balanced approach” to deficit reduction with higher taxes.

White House spokesman Jay Carney declined to say Friday if the entitlement cuts would be included in this year’s blueprint.

"What I can tell you is the president has demonstrated in the past and continues — and will continue to demonstrate his commitment to achieving additional deficit reduction that addresses our medium- and long-term challenges through a balanced approach," he said. 

Senate Democrats, facing a possible loss of their majority this fall, on Friday urged Obama to backtrack. Sanders and 15 other senators — including Sen. Mark Begich (D-Alaska.), who is facing a tough reelection battle — sent a letter to the president pleading with him to reverse course.

“Mr. President: These are tough times for our country. With the middle class struggling and more people living in poverty than ever before, we urge you not to propose cuts in your budget to Social Security, Medicare and Medicaid benefits — cuts which would make life even more difficult for some of the most vulnerable people in America,” the senators wrote.

Sanders said Obama was foolish to try to woo Republicans into a grand bargain on the deficit in the first place.

“I think the president made a mistake from day one. It certainly did not work,” Sanders said. 

In the House, Rep. Allyson Schwartz (D-Pa.) is preparing a letter to Obama on chained CPI letter that has about 102 signatures so far, sources said. She plans to send the letter to Obama soon.

Democrats on Capitol Hill have strong backing from labor unions and lobby groups for seniors.

“AARP staff have met with the White House with regard to their [fiscal year] 2015 budget proposal and have continued expressing the same concerns we’ve long had about chained CPI,” AARP spokesman Joshua Rosenblum said.

AFL-CIO President Richard Trumka has made clear to the White House that the labor federation will work against anyone who supports the cuts to Social Security and Medicare that were in last year’s budget.

“We have very smart voters and they know whether politicians are working for them or not, and this at the top of the list,” said AFL-CIO spokesman Josh Goldstein.

National Treasury Employees Union (NTEU) President Colleen Kelley has been working against the changes as well. 

“We do not know if chained CPI is in the proposed budget but NTEU has urged the administration not to include any cuts to federal retirement in its ’15 budget,” she said. 

Activists said the budget proposal last year deeply alienated the Democratic base, and warn standing by it could destroy the party’s hopes of holding the Senate in 2014.

“Older voters vote in higher numbers in midterm elections. If voters believe the president wants to cut their Social Security benefits, campaigns and super-PACS may look to tie Chained CPI like a lead balloon to any candidate they can,” one activist said, noting that neither the House nor Senate budget last year included the CPI change.

“There’s a reason the only budget that proposed chained CPI in 2013 was from someone who never has to run for reelection again,” he said, referring to Obama.

Another activist said Obama “is going to feel the full wrath of anybody up for reelection” if he includes the cuts in his budget.

Deficit hawks say walking back the entitlement cuts would damage Obama’s credibility on fiscal issues, perhaps fatally.

“It just looks like caving to special interest groups. This is something he can cite as a hard choice and as standing up to his own base,” said Bob Bixby, the head of the Concord Coalition.  

He said the Sanders letter is “all the more reason to keep it in” because Obama’s needs to distance himself from a “tax the rich” solution to the debt in order to foster centrist support for Democrats.

Bixby argued that because Obama already included the cuts in one budget, he cannot take them out without it looking purely political.

“He’s crossed the Rubicon. He can’t just take it out,” he said. 

Another Democratic deficit hawk and former congressional aide said that removing the $250 billion in savings generated from chained CPI will make the new budget look worse in deficit terms than the 2013 budget. 

“Even though it seems unlikely you will have a big deficit deal this year, the president has shown that he is at least willing to make a step in that direction.

“To that extent that the talks have failed, the question was who is being more reasonable? Reiterating his final offer to Speaker Boehner will allow the president to retain some degree of credibility,” the former aide said.

But Democrats say Obama could propose other ways to reduce the deficit that don’t cut entitlements.

"This is unacceptable. There are commonsense ways we can reduce the deficit that do not demand sacrifice from the most vulnerable Americans," Sen. Sherrod Brown (D-Ohio) said.