Obama to submit budget plan to Congress

US president Barack Obama will today send Congress his 2014 budget, in an effort to achieve an elusive "grand bargain" to tame runaway deficits that have soared above $ 1 trillion (€770 billion) for each of the past four years.

Mr Obama's spending blueprint for the 2014 budget year would accomplish the deficit cuts through a combination of further tax increases, further reductions in the growth of spending and reductions in the growth of the government's biggest benefit programmes, Social Security and Medicare, which provide monthly pensions and health care coverage to the elderly.

But instead of moving Congress nearer a grand bargain, Mr Obama’s proposals so far have managed to anger Republicans and Democrats alike.

Mr Obama’s Democratic allies have attacked him for pursuing cuts in Social Security and Medicare, while Republicans have rejected the president’s efforts to raise taxes further.

The president’s spending and tax plan for the budget year that begins on October 1st is two months late. The administration blames the delay on the lengthy negotiations at the end of December to avert the so-called “fiscal cliff” of tax increases and spending cuts and then fights over the March 1 automatic spending cuts.

The president's plan tracks an offer he made to Republican House Speaker John Boehner during December's budget negotiations, which Mr Boehner ended up walking away from because of his opposition to higher taxes on the wealthy.

The Obama budget proposal will join competing outlines already approved by the Republican-controlled House of Representatives and the Democratic-run Senate.

Congress is unlikely to get down to serious negotiations until this summer, when the government will once again be confronted with the need to raise its borrowing limit or face the prospect of a first-ever default on US debt.

As part of the administration's effort to win over Republicans, Mr Obama will have a private dinner at the White House with about a dozen Republican senators tonight. The budget is expected to be a primary topic, along with proposed legislation dealing with gun control and immigration.

Early indications are that the budget negotiations will be intense. Republicans have been adamant in their rejection of higher taxes, arguing that they will not go further than the $600 billion (€460 billion) increase on top earners over a decade that was part of the late December agreement to prevent the government from going over the “fiscal cliff”.

The administration maintains that Mr Obama’s proposal is balanced with the proper mix of spending cuts and tax increases.

“The president’s been clear that it’s going to take broad and shared sacrifice,” Treasury Secretary Jacob Lew said in an interview on National Public Radio. “He would not find it acceptable to make only reductions in entitlement programmes. We need also to raise revenues so that we have a fair balance of what the deficit reduction will come from.”

The most sweeping proposal in Mr Obama’s budget is a switch in the way the government calculates the annual cost-of-living benefits for the millions of recipients of Social Security and certain other benefit programmes from the current method tied to changes in the consumer price index. The new method, known as chain-weighted CPI, takes into account changes that occur when people substitute goods rising in price with less expensive products. It results in a slightly lower annual reading for inflation.

The switch to the modified CPI inflation formula would cut spending on government benefit programmes by €130 billion over 10 years, although the administration said it planned to protect the most vulnerable. The change would also raise about €100 billion in higher taxes because the current CPI formula is used to adjust tax brackets each year. A lower inflation measure would mean more money taxed at higher rates.

AP