Obama proposes cuts to Social Security: Official

WASHINGTON (AP) - President Barack Obama's proposed budget will call for reductions in the growth of federal Social Security pensions and other benefit programmes in an attempt to strike a compromise with congressional Republicans, a senior administration official said on Friday.

Mr Obama's budget proposal for the next fiscal year combines the president's demand for higher taxes on wealthy earners with Republican insistence on reductions in popular but costly entitlement programmes.

The official, who spoke on condition of anonymity to describe a budget that has yet to be released, said Mr Obama would reduce the federal government deficit by US$1.8 trillion (S$2.2 trillion) over 10 years, in part by lowering cost-of-living adjustments to government social safety net spending.

The reductions in growth of benefit programmes, which would affect veterans, the poor and older Americans, is sure to anger many Democrats. Labour groups and liberals have long been critical of Mr Obama's plan.

Republicans, meanwhile, insist that they will not support any tax hikes.

Mr Obama's budget proposal includes features from an offer he made to House of Representatives Speaker John Boehner during fiscal negotiations last year, in an attempt to reach a so-called grand bargain that would end Washington's cycle of lurching from one self-imposed budget crisis to another. Those talks ultimately failed but Congress did agree to increase tax rates on the wealthiest Americans.

A key feature of the plan Mr Obama is proposing for the federal budget year beginning Oct 1 is a revised inflation adjustment formula that would effectively curb annual increases in a broad swathe of government programmes, but would have its biggest impact on Social Security pensions.

The plan will also include reductions in Medicare spending for the elderly, much of it by targeting payments to health care providers and drug companies.

That Mr Obama would include such a plan in his budget is hardly surprising. White House aides have said for weeks that the president's offer to Mr Boehner in December remained on the table. Not including it in the budget would have constituted a remarkable retreat from his bargaining position.

Mr Obama's budget proposal calls for increasing tax revenue by placing limits on tax-sheltering retirement accounts for wealthy taxpayers. Mr Obama has also called for limits on tax deductions by the wealthy.

Mr Obama's budget, to be released next week, comes after the Republican-controlled House and the Democratic-run Senate passed separate and markedly different budget proposals. House Republicans achieved long-term deficit reductions by targeting safety net programmes and with no tax increases; Democrats instead protected those programmes and called for tax increases.

Congress and the administration have already secured US$2.5 trillion in deficit reduction over the next 10 years through budget reductions and with the end-of-year tax increase on the rich. Mr Obama's plan would bring that total to US$4.3 trillion over 10 years.

Deep spending reductions have been forced on Washington by the US$85 billion in annual across-the-board cuts, known as the sequester. The cuts were designed to be so blunt that they would compel the parties to reach a long-term spending agreement, but they failed to do so, triggering the sequester on March 1.

That left the government with little flexibility in implementing the cuts, which are set to continue for a decade, unless a long-term budget deal is finally reached.