Whether the President's compromise budget succeeds will depend on the sequester impact

The President's budget proposal was released as a trial balloon last Friday in advance of its formal rollout this Wednesday. It is similar to the Grand Bargain he proposed last summer, and the GOP rejected, to cut future entitlement benefits in return for increasing revenues provided by the rich. What chance the proposal has most likely will depend upon the impact of the sequester, the-across-the-board cuts that are beginning to take effect.

GOP House Speaker John Boehner slammed the door on the President's plan because it contains what he called tax increases and he claimed the White House was holding hostage the GOP desire to cut spending for an agreement to increase taxes. The GOP's budget already passed by the House of Representatives includes continuing the sequester cuts and begins reducing the debt by solely cutting government services and programs, including entitlements. Their bottom line: No new taxes.

Come on, Mr Speaker. The President is not hostage-taking; there is a direct relationship and that is why the President's version is a package plan. Here it is: the more revenue produced, the less amount of unpopular cuts need to be made to reduce the debt in the long-term.

Until the President checked in with his budget proposal, Congress had made the issue a deadlocked choice between two extremes: reducing the debt the GOP/House way versus the plan Senate Democrats are considering of raising taxes on the rich to save Social Security and Medicare “entitlements” in the form we know it. They also want to spend 1 percent more for safety nets for the poor and invest in education, research, roads and port infrastructure. The GOP plan would trim infrastructure, education and research by 16 percent.

All parties agree the costs of Medicare determine the amount of the long-term federal debt and Social Security could go broke in the distant future. The clash of the three budget proposals is also about how to bring those entitlements under control.

To finance Medicare, the GOP House plan would reduce benefits to future recipients by issuing them vouchers (premium support) to buy private insurance, though the amount of support would not keep up with the increasing cost of health care, causing future seniors to pay more out-of-pocket. The Democrats would decrease reimbursements to hospitals and doctors and increase taxes on the rich even more.

Instead of vouchers, President Obama proposes less reimbursement to health providers too, but revenue would be increased by putting a cap of $3 million on the amount the well-off could squirrel away in an IRA, a method used to avoid current taxes.

The President renewed his proposal to lower the way increases in Social Security benefits in the future would be calculated, using the “chained CPI,” tying the cost-of-living raises to different, more real-life factors than they are now, resulting in slowing the benefit increases to future seniors.

Since none of these proposals affect current seniors, a more important factor in forcing compromise is the sequester's impact on the economy and jobs. Polls show those two issues are the top concerns of voters now. The President would replace the sequester with “smart cuts” and increase education, research, and infrastructure funding while protecting the safety net. The President believes his plan would continue to support job growth in a recovering economy and the sequester contained and continued in the GOP's budget is a job and growth retardant. Economic growth is a critical contributor to debt reduction.

By the end of summer, we will know if the GOP/sequester budget will harm jobs and growth because that is when the Great Austerity Experiment we call the sequester will have fully kicked in. This summer's experience will be the ultimate convincer.

For more, visit www.mufticforumblog.blogspot.com and www.mufticforumespanol.blogspot.com

This is my column in the Sky Hi News today. Note: in the rollout this morning, the President also included a $560 billion tax increase on the wealthy and $78 billion increase in cigarette taxes over 10 years.