US Budget: President Obama Preparing To Offer Republicans Cuts To Social Security Payments To The Elderly In Return For More Taxes On The Rich

Republicans might get their way and see a reduction of Social Security cost-of-living payments to retired Americans, but only if they agree to additional tax increases for the wealthiest Americans and investments in the nation’s infrastructure.

This appears to be a crux of U.S. President Barack Obama’s latest budget proposal, which is expected to be delivered to Congress on Wednesday. The offer would put the ball in the court of GOP lawmakers, who are standing firm against additional tax hikes but want cuts to federal entitlement spending. Medicare, Medicaid and Social Security take up a large share of federal spending and face strains by the exploding number of Baby Boomers heading into retirement.

Some GOP lawmakers are being urged by their constituents to undo the across-the-board sequestration cuts that went into effect on March 1, especially as they pertain to federal contracts. Some legislators will be under pressure, especially in the Senate, to find ways to reverse these cuts, especially to defense contracts.

Whatever the outcome of next week’s negotiations, the decisions will be tough, and the president is trying to force the GOP out of its entrenched position against further tax increases. The administration is doing so by dangling before Republicans a deal that was being hashed out with House Speaker John Boehner last year before talks broke down over further tax increases. The White House is calling it an attempt at “compromise.”

“The president has made clear that he is willing to compromise and do tough things to reduce the deficits, but only in the context of a package like this one that has balance and includes revenues from the wealthiest Americans and that is designed to promote economic growth,” an anonymous senior administration official told the New York Times.

The cuts to elderly Americans’ cost-of-living adjustments would be to the so-called “chained CPI,” the method for used for calculating Social Security payment adjustments, which would be tweaked to lower these payments. It’s based on the economic theory that when prices rise on goods, consumers switch to cheaper products -- for example, switching to beans instead of meat, or gravitating to lower-cost brands that are in the same category of products.

“[Chained CPI] leaves out a major piece of reality,” left-leaning former Labor Secretary Robert Reich wrote in Newsday this week. “Unlike most other Americans, seniors pay 20 percent to 40 percent of their incomes for health care. They can't switch to lower-cost alternatives because they either don't exist or seniors aren't in a position to shop for them.”

House Majority Leader Eric Cantor reiterated on Wednesday his party’s stance that the president needs to accept structural changes to Medicare, Medicaid and Social Security -- and that the president needs to speak to the American people about these needs. The New York Times' John Harwood managed to get the House GOP leader to add: “then we’ll see” about additional taxes.

Cantor and House Republicans have been entrenched against further tax hikes, but it seems that they might be ready to make some tough decisions.