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Obama's Budget a Mixed Bag

Proposals could affect Medicare and other programs

by Tamara Lytle, AARP Bulletin, February 15, 2011

President Obama offered a $3.7 trillion budget that would make cuts to some programs to help chip away at the nation's deficit but increase others that he said are crucial to America's economic future.

Republicans, energized by a large class of fiscally conservative freshmen in Congress, slammed Obama's budget, proposed Monday, as a spending binge the nation cannot afford.

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Obama's blueprint would cut $400 billion during the next decade in domestic programs, but it does not take on the politically difficult proposals his own deficit commission has said are needed to reform Social Security and Medicare.

The president would freeze discretionary spending, outside of security costs, for five years. But it's not an across-the-board cut — some programs would come out winners and some big losers. The Low Income Home Energy Assistance Program (LIHEAP), for instance, would be cut nearly in half from $5.1 billion. Housing for older Americans would be cut $68 million to $757 million, with most of the cuts coming from new construction for needy seniors.

"It's mixed," said Cristina Martin Firvida, director of economic security for AARP, who said she was relieved that Meals on Wheels and meals for senior centers were not cut. "There are things here we like and things here we don't like."

The nation needs to "start living within its means," Obama told children at Parkville Middle School and Center for Technology in Baltimore. But education, infrastructure and research programs need to be beefed up at the same time, he said.

"I'm convinced that if we out-build and out-innovate and out-educate, as well as out-hustle the rest of the world, the jobs and industries of our time will take root here in the United States," Obama said in remarks before addressing students.

Republicans, who now control the House, decried Obama's spending increases and likely will put up roadblocks to those plans.

"The president's budget will destroy jobs by spending too much, taxing too much and borrowing too much," said House Speaker John A. Boehner of Ohio. "The president's budget isn't winning the future, it's spending the future. … Our goal is to listen to the American people and liberate our economy from the shackles of debt, over-taxation and big government. "

Before Congress even begins considering Obama's budget, which is for the year that starts Oct. 1, it must finish work on the current-year budget. The federal budget is funded under a temporary measure that runs out in early March.

Republicans have proposed cutting $100 billion in discretionary spending in the final seven months of this fiscal year. And Obama's budget for next year will have rough sledding in the House, where Tea Party-backed lawmakers are intent on shrinking the size of government.

Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, said Obama's budget "accelerates our country down the path to bankruptcy" and nearly doubles the government in size compared to when Obama took office. "Where the president has fallen short, Republicans will work to chart a new course — advancing a path to prosperity by cutting spending, keeping taxes low, reforming government and rising to meet the challenges of our time," Ryan said.

A presidential deficit commission laid out a dire scenario of federal red ink if the government doesn't cut spending and raise more revenue. It set out a plan for closing the deficit within the decade with controversial approaches, such as raising the retirement age for Social Security and closing a number of major tax loopholes. Few of those were included in the Obama blueprint.

Robert Greenstein, head of the liberal think tank Center on Budget and Policy Priorities, said the aging population and increasing health care costs for programs such as Medicare have caused a serious fiscal problem. The Obama proposal doesn't do enough to address the long-term fiscal problems, he said, but at least it stabilizes the debt as a share of the economy while politicians figure out a solution.

Obama pledged to work with Congress on revamping Social Security and Medicare, which will be short of funds in the long term as more Americans reach retirement age. But the budget largely avoids the topic in the short term. "It's not an urgent moment to do it," Jacob Lew, director of the Office of Management and Budget, told a news conference Monday, adding that Social Security does not add to the deficit in the next 10 years. "But it is the right thing to do, to do it way in advance."

Robert L. Bixby, executive director of the budget hawk group Concord Coalition, said the work of the president's deficit commission would be squandered if the White House does no more than pay lip service to the serious long-term problems.

"It is fine to be honest about how dire the outlook is," Bixby said, "but it would be better to get started on the solutions."

Obama's budget would make immediate changes to a number of programs important to older Americans:

  • The president's budget would slash home-energy aid under LIHEAP in half but asserted that lower energy prices would help ease the impact. Lew acknowledged that the energy cut would have a real effect on people but said, "We can't just cruise at a historic high spending level." AARP's Martin Firvida said she's not convinced that energy prices will stay low, given realities such as unrest in the Middle East. Many older adults rely on the program. "We're troubled by this very, very deep cut," she said. "A lot of those folks are in cold-weather states."

  • Housing for older Americans would be cut $68 million by reducing the amount that would be spent on new construction for needy seniors. The good news, Martin Firvida said, is that the cuts weren't as steep as what Obama proposed last year.

  • Biologic drugs could become cheaper — both for the government, which pays Medicare bills, and for consumers. The budget would let drug companies have only seven years to reap the profits of biologics before generic drugs could provide competition and bring prices down. Currently, they have a 12-year monopoly. Biologics are protein-based treatments, such as injectable drugs, used to treat things such as cancer and rheumatoid arthritis. Nora Super, AARP director of federal government relations, health and long-term care, said biologics can cost as much as $10,000 a month. Getting generics to the market faster, Super said, means "real savings to the pocketbooks of Americans and gives them real health benefits."
  • A one-time $250 payment to Social Security recipients would help offset the pain of two years without a cost-of-living increase, said Barbara B. Kennelly, president and chief executive officer of the National Committee to Preserve Social Security and Medicare.

  • The budget funds two more years of the "doc fix" — a program to stave off changes to the rate that Medicare reimburses doctors. Without the fix, doctors would see their fees drop and some likely would stop accepting new Medicare patients.

  • About $6.5 billion would be cut from Medicare over 10 years, but the biggest change would be tightening up on Medicare waste and fraud.

  • The budget would add $96 million for a caregiver program to help families keep older adults living in the community for as long as possible. The money would go to agencies around the country that already provide help to seniors and caregivers.

  • The Social Security Administration would see an increase of $1.1 billion, which Martin Firvida said would help with staffing to process applications and other services for beneficiaries.

  • Obama would cancel tax breaks that wealthy citizens now receive, beginning in 2013. He would restore the higher level of estate taxes from 2009. And families with more than $250,000 in income would lose part of their current tax deductions.

None of those tax proposals is likely to win much support among Republicans in Congress.

Obama called on Republicans to work with him on the budget.

"We are all Americans, and we are all in this race together," he said in his budget message. "So those of us who work in Washington have a choice to make in this coming year: We can focus on what is necessary for each party to win the news cycle or the next election, or we can focus on what is necessary for America to win the future."

Tamara Lytle is former Washington bureau chief for the Orlando Sentinel.