How The Latest Budget Could Affect You

Transcript

NEAL CONAN, HOST:

This is TALK OF THE NATION. I'm Neal Conan in Washington. After years of last-minute deals, fiscal cliffs and sequestration, House Republicans, Senate Democrats and as of today the president of the United States all have budget proposals on the table. The Senate bill is highly unlikely to pass in the House; the House almost would certainly die in the Senate. Today, the president trying to find a line down the middle with a proposal that embodies the principles of the deal he offered to Speaker John Boehner almost two years ago in the so-called grand bargain.

Even before it became public, Republicans objected to higher taxes on the rich. Democrats protested plans to reduce growth of Social Security benefits. In a moment, NPR's Tamara Keith on what's in the president's plan; Marilyn Geewax on chained CPI, the term for the controversial proposal on Social Security; and Brian Naylor on the effects of sequestration, which will continue if Congress and the president can't come to a budget agreement.

Later in the program, what's in a name? We want to hear from those of you who changed your first name as adults. What did you choose and why? You can email us now. The address is talk@.npr.org. But first, the budget. NPR congressional correspondent Tamara Keith joins us from a House booth at the Capitol. Good to have you back on the program.

TAMARA KEITH, BYLINE: Glad to be back with you.

CONAN: And just at first blush, there seems to be something in the president's plan for everyone to hate.

KEITH: Absolutely, very much so. The Democrats, particularly progressive Democrats on the left, are very concerned about the changes that he is entertaining to Social Security. And on the right, these changes have been relatively well-received, though they say that the budget doesn't go far enough. And then of course there are great concerns from the right about the tax increases that the president imagines, as well as additional spending on infrastructure and early childhood programs and things like that, projects that the president feels are important to sort of help the nation grow and become stronger and sort of grow our way economically out of the problem.

Many of those things are perceived on the right to be stimulus, which as you know has become a pretty dirty word on the right.

CONAN: And so the president presented this as, look, we don't have to choose between cutting the budget deficits and growing the economy. We can do both at the same time. We can put a little money in to build up infrastructure, roads and bridges and that sort of thing. All the studies show they're deteriorating, and they need help. At the same time, we can reduce the budget deficits partly by cuts, yes, partly by constraining the growth of things like Social Security, but as you mentioned, also by some new taxes on the rich.

KEITH: Some new takes on the rich, changing the way deductions work so that the wealthiest Americans would not get as big a benefit from tax deductions as more middle-class Americans, also has the idea of the Buffett rule, which is something that he's talked about before, which is that the idea that the very wealthiest Americans would not have a lower effective tax rate than middle-class Americans, so that they would have a minimum effective tax rate of 30 percent.

And there are actually a number of cuts in this budget, a number of spending cuts, some of them more real than others. Obviously, there are things like war savings and some things like that that Republicans feel are sort of fake savings. But there is real savings in there from mandatory programs like farm programs and also some cuts to Medicare, what the president described as squeezing out waste.

CONAN: Squeezing out waste. Of course, nobody can complain about squeezing out waste but they can complain about cutting benefits. The president would say we're not cutting out benefits, these are on the other side of the equation. But nevertheless, all of this is extremely controversial.

KEITH: Oh absolutely, and, you know, it's worth noting again and again and again that these budgets really are vision documents, that they aren't going to become law. But the president did do something a little bit risky here, you know, he put on the table, in print, in bold writing, that he supports changes to entitlement programs, including Social Security and Medicare.

And this is something that he is definitely taking heat for on the left, and in some ways that is winning him some friends on the right but not well enough.

CONAN: Well, let's get back to that in just a minute, Tamara. Stay with us. We want to find out what those changes, particularly to Social Security. Yesterday, I think petitions of two million people presented to the White House by some of those people from moveon.org and other organizations like that.

With us here in Studio 3A is Marilyn Geewax, and that's NPR's senior business editor. And Marilyn, what they were complaining about was something called chained CPI. Now this is a term that we're going to be hearing a lot. It has a term - a life independent of this president's bill. It's an idea that economists came up with, and it would replace the way we measure the cost of living. As we know, the Social Security payments are pegged to the cost of living. If the cost of living goes up, your payment on Social Security goes up, as well.

MARILYN GEEWAX, BYLINE: Right. You know, Neal, it would be so helpful if we had economists who spoke English so that we didn't have to use words like chained CPI. I'm sorry, people.

CONAN: We wouldn't have you around.

GEEWAX: But trying to get past the language and focus on the ideas, the thing is that every year Congress takes a - or rather the government in general, the Social Security Administration - takes a look at inflation to decide whether or not to send out larger checks to the recipients.

Now this past year, for example, they measured inflation, and they came to the conclusion it was 1.7 percent. So that's how much of a raise everybody got in their checks. And that is based on what's called the Consumer Price Index, the CPI. And the one that they use compares what's in your market basket, and if you came back, you know, a year later, how much more would it have cost you.

CONAN: So if the price of eggs went up by X percent, and the price of milk went down by X, they measure all that out and see what happens.

GEEWAX: And it comes out, you know, to see how much more you're spending on that same market basket of goods and services. But economists say that's not how people actually live, that the way we really interact with inflation is we often substitute things. If we see something that goes up, we'll switch to something very comparable.

For example you might go to the grocery store, and let's say that blueberries are $4.99 for a container, but strawberries are on sale for $1.99. Well, you know, they're both berries. I mean, maybe you like blueberries better, but most human beings are going to say, oh, woe is me, I have to go into debt, I just simply have to have a blueberry. Most people will say you know what? I'll take the strawberries.

And maybe the Granny Smiths cost more this week, but the McIntoshes are down, so you switch. You're still getting apples, but you're switching which type you're choosing. So when you get to the cash register, in fact your inflation bite isn't as bad as what you might think because you use a certain amount of common sense and maybe a couple of coupons.

So this is what they call chained CPI. Your behaviors are changed because of these substitutions, and that gives you a lower rate of inflation.

CONAN: Now this comes across as a, well, an abstract measurement. In other words, we have a better way to measure what people actually do in the economy as opposed to - and so we should adopt that because it is a more accurate measure of people's behavior and the way that increased prices affect what they're able to buy.

GEEWAX: So they're saying that chained CPI, which consistently comes in a little lower, it's cheaper because of those substitutions, that that's the number we should use when setting Social Security benefits. So that's the one that President Obama is saying let's just make this technical change. We're not going to structurally change Social Security. We'll just make this technical change using a different measure of consumer prices.

But the real effect in your check that you get from the government is it'll be a little bit smaller.

CONAN: And the effect multiplies over the years. It compounds.

GEEWAX: Right. That's the problem. Let's say for example - I'm going to give you a very simple example using round numbers. Let's say you get $10,000 every year from Social Security. And inflation is measured by - the regular, old-fashioned CPI might be 2 percent. So you would think, OK, I'm going to get a 2 percent raise, I'll get $200 more every year from Social Security.

But we've switched now. Now you're on the chained CPI, and that comes in, most economists say it would probably come in about three-tenths of a percentage point less. So that would be 1.7 percent, in other words you'd only get $170 raise.

CONAN: Well 30 bucks here or there, what difference does that make?

GEEWAX: You could say in your first year, well, 30 bucks, I do want to help the country out, I'll just absorb that. The problem is it compounds over time because each year you keep getting a little bit less, and your base is a little bit smaller than what it otherwise would have been.

CONAN: So a percentage of what?

GEEWAX: And it - right, exactly. So it's a smaller raise on a smaller base. And over time that adds up. So I've seen economic studies that say if you just consistently did that, three-tenths of a percentage point less, and you start out at 65, you say not that bad, I'll deal with it, it's not so much, by the time you're 85 it would be the difference instead of just $30, the compounded difference would be $650 a year.

Now you're talking real money. If you're trying to live on $10,000 a year, and you're not getting $650 that you otherwise would have had, that's really quite a chunk of change for a lot of people. So that's why liberal groups are very unhappy about that. Now the president is proposing some ways of adding a special bonus for the poorest and the oldest to try to make up for that a little bit in the future.

So they'd try to take some of the sting out of it because effectively this would - the older you get and the poorer you get, the more it's going to hurt.

CONAN: And it's interesting, as we mentioned, this is an idea that has had a life independent of this particular budget argument, it's been around for years, in fact, economists saying this is a more reasonable way of measuring this basket. And it is unlikely to go away after this particular argument about these particular budgets.

GEEWAX: This one kind of seems to stick even though certainly there are a lot of groups that protest it, and as we said yesterday, there were a lot of people protesting it. It angers many liberal groups. But there's a certain appeal here because most Republicans are in favor of it, and a lot of Democrats feel like something probably does need to be done to trim Social Security benefits, and if you go at it in a head-first kind of way, if you really try to take on some structural change of Social Security, that's hard to do. That's really hard.

CONAN: And that's where you get into what they fear is the slippery slope. Once you change structure, where does that stop?

GEEWAX: Then you're opening a can of worms. This keeps all the worms in the can, the lid is on because it doesn't really change anything about Social Security other than this technical measure of inflation. So it's - you know, given what happens in Congress, how tough gridlock is, it might be the one change that maybe could get through.

CONAN: We'll talk about other changes that might get through, too. Marilyn Geewax, thank you very much for your time.

GEEWAX: You're welcome.

CONAN: NPR senior business editor Marilyn Geewax, with us here in Studio 3A. We'll be back with congressional correspondent Tamara Keith after a short break, and a little bit later NPR's Brian Naylor joins us to talk about the effects of the sequestration he's already seeing around the country. Of course those effects will continue if the Congress and the president cannot come to an agreement on a new budget. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.

(SOUNDBITE OF MUSIC)

CONAN: This is TALK OF THE NATION from NPR News. I'm Neal Conan. As of this morning, the president's 2014 budget proposal is out. It's a political statement about where he'd like the country's priorities to be and hints at where the government expects the economy to go. Medicare would get cuts; Medicaid would be mostly left intact.

The earned income tax credit and the child tax credit, set to expire in 2017, would be made permanent. Higher-earning Americans would face a number of tax hikes. Farms and agribusiness would lose some of their subsidies. And as we are talking about this with - NPR congressional correspondent Tamara Keith is with us from the House booth at the Capitol, we have those three proposals out, the Paul Ryan, the so-called Paul Ryan budget, that's the House Republican budget. There's the Senate budget that came out, the first time in years the Senate has approved a budget. And now the president's budget, which comes sort of down the middle.

You said none of these proposals individually is going to become law. Is there any possibility that they could take some from Column A and some from Column B and make a deal?

KEITH: I guess there is a possibility. It doesn't seem at the moment like an extremely likely possibility. You know, it's very hard to gauge these things. You know, tonight the president is having dinner with a dozen Senate Republicans as part of his charm offensive, his ongoing effort to really try to strike a deal, maybe not a grand bargain as it would be called but to strike some sort of an agreement going forward to end this rolling fight that we've been having, where we go from a fiscal cliff to a sequester to, you know, we've got a debt ceiling, and then we'll have another debt ceiling.

So there is some desire to do it, and some Republicans I spoke to today on the House side felt that they saw some glimmers of hope in the president's proposal, in the president's budget. But it's just not clear how we get from here to there. We now have three very distinct visions. But at the moment there isn't even a conference committee scheduled between the House and Senate budgets.

And the president's budget is unlikely to get a vote, and if it does get a vote, it will be a show vote. So these are tough times, but tough times for bipartisanship and happiness here on Capitol Hill. But I guess there's always a possibility.

CONAN: So if these are - if this proposal by the president is largely a political document, some people on the left would say, wait a minute, we are being triangulated. The president is proposing cuts to Social Security and other entitlement programs to show to, well, partly to Republicans but mostly to the center in this country that, well, he's willing to play down the middle, he's willing to inflict a little pain on his side. It's those darn Republicans who are the obstructionists.

KEITH: Well, and, you know, the interesting thing is that these - this chained CPI thing that we're talking about, the president proposed this to John Boehner back in December in the discussions to avoid the fiscal cliff. Many of these items were on the table back then in what could have been a big, grand deal.

So this isn't a new thing that the president's proposing. However, this is in big, bold writing so that everyone has to believe him when he says that he's willing to do these things. You know, some Democrats, some more moderate Democrats, say, hey look, he's put out an olive branch. The question that many have is whether Republicans are going to bite his hand because in the past, his efforts at negotiations have not necessarily turned out so well as far as Democrats are concerned.

CONAN: Because the Democrats, the progressive Democrats, are concerned that this is a starting point for a negotiation and that the president might conceded a little bit more and give a little bit more on taxes, and their interest would be gouged.

KEITH: Yeah, well, and the president made it pretty clear today in what clearly is a nod to the progressives of his party that this is not an a la carte budget. He's not saying, oh, well, you know, if you won't give me the taxes, we could still do the chained CPI. He's not saying that at all. He is saying, you know, this is a whole meal here, and you have to take the whole thing.

He wants changes in the tax code if he's going to get - if he's going to give up the chained CPI and the Medicare changes because he's said he's not comfortable with these changes. So...

CONAN: But if it's take it or leave it, it looks like the House will leave it.

KEITH: Yeah, more or less, but I saw slight glimmers, I just don't know what to make of them, from some more moderate House Republicans, saying, hey, you know, we could continue this conversation, at least.

CONAN: So - well let's assume for a moment they don't. What happens if the Congress and the president cannot reach a deal on the budget? Do we continue budgeting by what's called continuing resolution, in other words we enact last year's budget, which was on a continuing resolution, say we're going to spend the same next year, and that's that?

KEITH: Well, you know, one thing to note is that we talk about the sequester and those automatic spending cuts. The president's budget, the Senate budget and the House budget all make the same assumptions about the level of spending. The president and the Senate want to undo the sequester, but actually they don't want to undo it. They want to replace it. They're actually locking in those levels of spending, those lower levels of spending.

So that's an area of agreement, and from there, from that basic top-line number about discretionary spending, you can actually get to what they call regular order and appropriations bills. And these are the bills that actually do the heavy lifting of budgeting. And those bills are being worked on behind the scenes now.

At some point we'll start getting committee hearings and seeing actual language and possibly, possibly, I mean who knows, they could actually go through the regular order, pass these appropriations bills, and we could have a spending level set for the coming year without a continuing resolution. It's crazy enough to work.

CONAN: These are the days of miracles, Tamara.

(LAUGHTER)

KEITH: It could happen. You know, don't - I guess you could call me in a little while and say neener-neener, you were wrong, but it could happen.

CONAN: Tamara, thank you very much, and we will keep neener-neener in mind should the need arise.

(LAUGHTER)

KEITH: Thanks.

CONAN: Tamara Keith, NPR congressional correspondent, joined us from our House booth at the Capitol. Now we're going to turn to the effects of the sequester, but here is President Obama speaking this morning about what he called the foolish, broad-ranging cuts that are in effect now.

(SOUNDBITE OF PRESS CONFERENCE)

PRESIDENT BARACK OBAMA: My budget also replaces the foolish, across-the-board spending cuts that are already hurting our economy. And I have to point out that many of the same members of Congress who supported deep cuts are now the ones complaining about them the loudest as they hit their own communities.

CONAN: Here with us in Studio 3A is NPR Washington correspondent Brian Naylor. Nice to have you on the program, as always, Brian.

BRIAN NAYLOR, BYLINE: Nice to be here, Neal, thanks.

CONAN: And so these, as the president would put them, foolish cuts; these across-the-board cuts. Well, they are beginning to take effect. Well, we're about six weeks after the sequester now.

NAYLOR: Yeah, slowly they're starting to take effect. We haven't seen a whole lot of impact yet. But the notices are starting to go out to the federal employees who will be furloughed. We're getting - they're starting to get a better sense of how they'll be affected. And some things have actually been postponed.

For instance the FAA wanted to start closing down some of these control towers at small- and medium-sized airports, the ones that they - they're called contract towers. They hire private companies to operate them; they're not staffed with FAA employees. But this was an easy way to save some money.

And then they announced late last week that they were going to postpone those cuts because there have been some court challenges brought by some airports, and other airports are saying, you know, let us come up with the money to keep these towers open because it's important that our airport be seen, at least, as something that's commercially viable. There are other businesses that rely on it.

So some of it is being put off. But yeah, we're starting to see some effects. You know, some of the national parks are saying they're going to open late for the season because of the cuts. Acadia National Park, for instance, is not going to open one of its major roads until later in the spring. Other places they've - there have been some reported - some lines at - folks coming back from trips overseas are reporting at airports going through customs. We haven't seen any lines yet at the TSA, but that's...

CONAN: That's lines longer than they are already.

(LAUGHTER)

NAYLOR: Yeah, right. And that's expected just to be a matter of time before that starts taking effect. So far, though, it's sort of we're still in a very kind of wait-and-see attitude. But it's thought that as surely as the spring progresses into summer, the effects of the sequester will be more and more noticeable.

CONAN: Interesting, we heard from our colleague Dina Temple-Raston this morning that the trial of Osama bin Laden's son-in-law, scheduled to start in the fall or late summer in New York, is now going to be put off until January because public defenders are going to be furloughed over the summer.

NAYLOR: Yeah, I think the judge apparently was quite shocked by that. But they, the public defenders, are part of the Justice Department and the Justice Department has to - or are funded by the Justice Department, and they were not made exempt. So unless Congress comes back and says, you know, this is kind of embarrassing, we ought to do something about this, you know, that's the way it's going to be.

CONAN: Kind of embarrassing. One of the cost - we heard so much in the run-up to the sequester that meat inspectors...

NAYLOR: Right.

CONAN: ...would be furloughed one day a week like everybody else. And, of course, you can't process meat in a plant unless there's a USDA inspector there to say, grade A.

NAYLOR: Yeah, yeah. Yeah. And that's one of the only exceptions that Congress has now granted back last month when they were passing what Tamara was talking about, the continuing resolution for the rest of the year. They went back and revisited that because everyone agreed that if you can't have these inspectors on the job, the plants will close. The private employees will be laid off. It'll be backlogs of, you know, cows and pigs being waited - waiting to be processed. Farmers will be unhappy.

And so I guess you could say the power of the meat lobby, they were able to find money elsewhere in the budget, reprogram it and send it to the Ag Department. So these meat inspectors will not be furloughed. But that's the rare exception to - so far, everything has remained pretty much as the - I shouldn't say intended because nobody really wanted this to happen, but that's been the only exception to it.

CONAN: This - we talked about the grand bargain earlier, almost two years ago now. The sequester was a byproduct of the failure of the grand bargain. Then they said, well, we'll appoint a bipartisan committee. And if they fail to come up with a budget agreement, everybody can live with budget cuts. Everybody can live with - we'll put in the sequester something so horrible that, of course, they will come up with budget cuts that - the gun to their head, they will of course come up with something everybody can agree with. They did not.

NAYLOR: Right.

CONAN: And the sequester cuts have now taken effect.

NAYLOR: Right. This was supposed to be the ultimate gun to the head, the sword of Damocles, whatever, what have you. This was not meant to happen. This was meant to be a tool to force them to act. And, well, not surprisingly, even this could not force Congress and the president to get together on these tough, intractable budget problems. So, as a result, this is the worst-case scenario that is taking effect.

And as Tamara touched on a little bit, while the sequester is only in effect until the end of this fiscal year, the spending caps that Congress put in place will remain in effect for the next 10 years unless, of course, future Congresses could come back and say, you know what? This is a really dumb idea.

CONAN: We didn't mean that.

NAYLOR: Yeah. But, but assuming that that - they - these caps stay in place, these cuts will remain pretty much locked in place. Now, in future years, Congress will give the different agencies involved more leeway in terms of, all right, so we don't have to cut the public - we don't have to furlough the public defenders or we don't have to close these towers. But you've got to trim your budget elsewhere.

Right now this is, you know, the proverbial meat ax. Everything gets cut indiscriminately. I think down the road Congress will say, OK, this is where we want these reductions to be made, and the administration will have some input as well.

CONAN: Brian Naylor, NPR Washington correspondent. We're talking about the effects of sequestration. You're listening to TALK OF THE NATION from NPR News.

And you mentioned flexibility. The Pentagon asked for flexibility. They said, look, we can't have just across-the-board cuts. And, of course, anything that is war-related for the troops in the field in Afghanistan, that's not going to be affected.

NAYLOR: Right.

CONAN: But they wanted more flexibility to say, we need to be able to spend money here, and maybe we'll take it away over there.

NAYLOR: Yeah. And they didn't get that. I mean, they got the exception for the training and readiness so that the soldiers, the troops now in Afghanistan or who may go to Afghanistan in coming months to replace some of those who are coming back will get the kinds of training they need. But, right. Having said that, they don't have the flexibility to make cuts elsewhere to reprogram the funds.

Again, probably after October, the new fiscal year, they'll get back some of that flexibility to move the money around the way that they would prefer. But you're also seeing, you know - and I don't want to get too deep into this beyond my range of knowledge, but the - some of these big weapons programs, for instance, the F-35, that's costing, you know, tens, hundreds of billions of dollars...

CONAN: Per plane, yeah.

NAYLOR: ...per plane, this program is not being trimmed. And so there are some areas where you would think that they might have - they might like to make some reductions that they've not been able to do.

CONAN: In the meantime, let me ask you something about the politics of this. Again, nobody wanted this, but eventually, when it came down to it, Republicans said, look, we've been asking for cuts. These may not be exactly the cuts we want, but at least we got cuts...

NAYLOR: Yeah.

CONAN: ...real cuts. They're going to be spending less money. And the Democrats were able to say, wait a minute, these are those heartless Republicans who are, you know, causing chaos in the meatpacking industry and shutting down towers all over the country. Both sides got something they wanted out of the sequester, too.

NAYLOR: Yeah. It's hard not to be - it's hard to avoid being cynical about this. But, yes, both sides actually have an issue now. I mean, certainly the Republicans - I'm not being cynical. This is what they want.

CONAN: They campaigned on.

NAYLOR: This is what they campaigned on. They've been railing against federal spending levels for the - since President Obama's been in office. And now here's our chance and here's - yes, we've cut 85. We've made them cut $85 billion from spending this year. It's not a huge amount, but it's real money. And so, yes, we're very proud of this. It may not be exactly in some of the areas we would like, but nonetheless, this is what we ran on. This is what we promised to you, and we're delivering.

The Democrats, on the other hand, can say, look at those, you know, those heartless Republicans, you know, as you say, cutting control towers and furloughing federal employees, meat inspectors and all that. So they have an issue that they can say, you know, well, we're here to protect against that and in fact they can also claim, rightly, that they did protect programs such as social security and Medicare mostly from these cuts. So everybody gets a little something that they can run on in the fall.

CONAN: And because Social Security, and for the most part, Medicare and Medicaid are not covered - not affected by the sequestration cuts, well, that magnifies the effects in the so-called discretionary budget. That's where Congress votes on these things every year and are not mandated by law. But that's - so the effects, right now, it looks like they're going to play out for the rest of the year.

NAYLOR: It does indeed. There are some efforts I know, there are some members of Congress who are trying desperately to get money back in the control towers but I'd be surprised if that happens.

CONAN: Bryan Naylor with us here in studio 3A. NPR Washington correspondent describing the effects of the sequester. Thanks very much, Bryan.

NAYLOR: Thanks, Neal.

CONAN: When we come back. Our next guest was sure all along that the name on his birth certificate, Lindsay, did not fit him. When he finally settled on Silas, changing it came with some unexpected remorse. Stay with us. We want to hear from those of you who changed your name as an adult. What did you pick, and why? Email us: talk@npr.org. Or call us, 800-989-8255. It's the TALK OF THE NATION from NPR News. Transcript provided by NPR, Copyright NPR.