President Obama’s proposed budget targets seniors. It proposes a different way of calculating the consumer price index. The new way will produce lower CPI figures.
Why is this important to the budget? Because Social Security and Medicare have built-in cost-of-living adjustments. By lowering the official CPI figure, which is used to calculate benefits, the government can save money.
Will this lower the rate of increase in prices? Of course not. Will this make it cheaper for seniors to live? Of course not. But it will make it appear that Medicare and Social Security are in a slightly shallower hole.
How deep is this hole? Prof. Lawrence Kotlikoff said it was $222 trillion last summer. It’s higher today. It’s probably pushing $230 trillion today. That’s the present value of future unfunded obligations.
Will Obama’s proposal change anything fundamental? No. But he thinks it justifies his call for higher taxes.
The proposal at least caught the attention of a New York Times columnist. He wrote:
But to Mr. Obama, cost-saving changes in the nation’s fastest-growing domestic programs are more progressive than simply allowing the entitlement programs for older Americans to overwhelm the rest of the budget in future years.
What was that word? Overwhelm. You read it in The New York Times.
Did you read that right? Yes. He used it again.
The president’s views put him at the head of a small but growing faction of liberals and moderate Democrats who 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 — the programs’ costs will overwhelm all other domestic spending to help the poor, the working class and children.
“The math on entitlements is just not sustainable,” said Senator Mark Warner of Virginia, one of the few Democrats to unequivocally endorse Mr. Obama’s budget. “And if you’re not finding ways to reform, where do you squeeze? Well, then you squeeze early-childhood programs, you squeeze Head Start, you squeeze education and veterans.”
What’s that again? “Not sustainable”?
What has been the response of most Democrats in Washington? Some are outraged. Others are mute. A few are supportive.
How much will the proposed tinkering with the formula save the government? $230 billion. To which are added the obligatory words: “over ten years.”
So, it will save $23 billion a year. And how far is the retirement system in the hole? Maybe $230 trillion.
Why did Obama do this? It is his way to avoid sequestration, which he agreed to in 2011. He doesn’t want a slowdown in federal spending.
Will Republicans agree to the cuts? Of course not. They will campaign against him for proposing them. Representative Greg Walden of Oregon, who is the head of the House Republicans’ campaign committee, told CNN that the budget was “a shocking attack on seniors.” Conclusion: “His words were interpreted as a signal that in the 2014 midterm elections Republican candidates will again accuse Democrats of trying to cut Medicare and Social Security. . . .”
So, the Democrats are trying to blame House Speaker John Boehner. They say the cuts are his idea.
We are on the Titanic. We have hit the iceberg. So, let’s rearrange the deck chairs.