Why Is Obama Ready to Fold in Budget Talks?

Fresh off a political victory over the GOP, he's offering to slash entitlements with chained CPI—a regressive tax increase—and pointless cuts to Medicare.
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Jonathan Ernst/Reuters

President Obama’s opening position in forthcoming budget negotiations includes a commitment to cut into the two major social-safety nets, Social Security and Medicare.

Obama has already moved well beyond stating he is willing to sacrifice the inviolability of what those on the right pejoratively call “entitlements.” The president’s budget calls for reducing Social Security benefits by rejiggering the way inflation is calculated, switching to a new measure called chained consumer price index, or chained CPI.

Few realize that changing this gauge will affect many people besides seniors. Veterans, for example, will find both their pensions and disability benefits cut under the adjusted measure. And chained CPI would increase taxes, but in a decidedly regressive way: Many lower-income people will find themselves bumped into a higher tax bracket, while those already in highest tax bracket will feel no effect. And for openers, Obama is offering to squeeze $370 billion out of Medicare via cuts to providers and raising select fees and premiums. All this is before Republicans have put on the table any suggestions that would indicate their willing to increase revenue by even a penny or to spend a dollar on what the president considers the nation’s top priorities.

Experts disagree how big a problem Social Security faces. But there is no question that any shortfall can almost entirely be covered by lifting the cap on income subject to Social Security taxes, which presently exempts any income beyond the first $114,000. (Senator Mark Begich, an Alaska Democrat, has proposed just that.) It is grossly unfair to cut benefits to all while letting the rich pay a smaller share of their income to Social Security than the poor and the middle class.

As far as Medicare is concerned, it’s important to note that the program is really just a big reimbursement machine. Thus if the government cuts the payments people get from Medicare without reducing the cost of health care, it simply forces patients to pay more out of pocket. If, however, one cuts health-care costs, Medicare costs will fall automatically. Ergo, any bill that merely cuts benefits is wrongheaded on the face of it.

A good way to cut health-care costs is by going after the very high profit margins of insurers and health-care corporations, the astronomical salaries of their CEOs, and the limited competition among health insurers. All of these drive costs up while providing little apparent benefit to consumers.

If we must take the scissors to federal outlays, there are better places to cut than Medicare. Freezing defense appropriations at 2011 levels would save $611 billion over 10 years, and decreasing appropriations by 1 percent annually would save an estimated $862 billion over a decade.

If Medicare itself must be trimmed, here are some ways to reduce costs without reducing benefits or delaying eligibility:

  • By negotiating to get drug makers to provide the same discounts to Medicare patients that they grant to Medicaid patients, the U.S. could save more than $150 billion over ten years. (Pharmaceutical companies would still collect many more dollars per a container of pills than they collect for the same medications in other countries).
  • Administrative costs in the U.S. amounted to $30 of every $100 spent on health care compared to $17 in Canada. If these costs were trimmed to the same level as the average for countries with mixed public-private insurance systems, it would save $55 billion per year.
  • It’s easy to call for reducing medical errors and hospital inefficiencies and very difficult to reduce them. Yet both have reached such high levels that it hard to image diluting benefits before additional attempts are made to cut both. There are an estimated 44,000 to 98,000 preventable deaths due to medical error each year and an additional 99,000 due to health-care-associated infection, almost all of which are preventable. The two combined increase costs by up to $130 billion annually.
  • Medicare fraud is so common it is reported to have overtaken the trade in controlled substances (those other drugs) in South Florida. Collecting some of the billions siphoned off here is picking low-hanging fruit.

One might have thought that Obama, having recently scored well by hanging tough on the shutdown and debt ceiling, would not open the new round of negotiations with major concessions before sitting down to give-and-take. However, the president seems to have reverted to the nice guy he is, ready to give away more than half the shop just to show how reasonable he is. In the process, he is cutting into what historically has been the strongest brief of the Democrats—or, at least, the liberal wing of the party.

The media keep referring to the polarization of American politics and pointing to gerrymandering to explain why hyper-conservative Republicans have safe seats and, hence, can hold radical positions with impunity. What is missing in this narrative is, what is happening on the other side of the polarized divide? Why do we hear so little from the districts in which liberals have safe seats? Where is the left’s Tea Party? Maybe this time the liberals will smell the coffee, wake up, line up, and fight to protect the social safety net—first of all from the president himself. 

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Amitai Etzioni is a university professor and professor of international relations at The George Washington University. He served as a senior adviser to the Carter White House and taught at Columbia University, Harvard University, and the University of California at Berkeley. His latest book is Hot Spots: American Foreign Policy in a Post-Human-Rights World.

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