Spending cuts in Obama deficit plan would spread the pain

WASHINGTON -- Upper-income beneficiaries could pay more for Medicare. Farmers could lose federal payments. Federal workers could pay more into their retirement plans. Airline passengers could pay higher security fees.

President Obama's full plan to slash upward of $3 trillion from federal budget deficits over 10 years may be dead on arrival in Congress, but don't be surprised if some elements survive.

Although Obama's proposed $1.5trillion in tax increases on upper-income Americans and corporations are getting most of the attention — and opposition — his spending cuts are more likely to win Republicans' support, budget experts say.

"I'm proposing real, serious cuts in spending," Obama said Monday. "These savings are not only counted as part of our plan, but as part of the budget plan that nearly every Republican in the House voted for."

So, although the reaction from Republicans was overwhelmingly negative, they are likely to accept some of Obama's proposed spending cuts, particularly in Medicare and Medicaid — and then add to them.

Those twin health care programs for seniors, the poor and people with disabilities serve nearly one in three Americans, and they are at the heart of the debate over cutting federal deficits. Together, they will cost the federal government about $750 billion this year, roughly 20% of the budget.

Much of the debate Monday focused on Obama's retreat from an earlier willingness to consider raising Medicare's retirement age, gradually, from 65 to 67. That could save $125 billion over 10 years, once fully implemented.

Obama didn't repeat the offer, made during negotiations with Republican House Speaker John Boehner this summer. He did propose $248 billion in Medicare savings over 10 years and $72billion in Medicaid savings.

"What the president describes as spending cuts appears, at best, to be a slight reduction in the unsustainable growth of the government budget that's occurring on his watch," said Rep. Jeb Hensarling, R-Texas, co-chairman of the special congressional committee charged with finding at least $1.2 trillion in savings.

That "slight reduction" includes major reductions for Medicare and Medicaid providers — drugmakers, doctors, hospitals and insurers — and smaller changes for beneficiaries. Starting in 2017, for instance, Medicare recipients with income above $85,000 would pay 15% more in premiums for doctor visits and prescription drugs. That would raise about $20 billion over five years.

Consumer groups such as AARP, the nation's largest seniors group, and Families USA criticized the Medicare and Medicaid cuts. But they stand a good chance of being included in the recommendations of the deficit "supercommittee" this fall.

"The Medicare proposals were disappointingly modest. On the other hand, there's no reason not to do them," says Douglas Holtz-Eakin, former director of the Congressional Budget Office and adviser to congressional Republicans.

Rep. Chris Van Hollen, D-Md., a supercommittee member, said Obama "was very clear that Republicans can't just cherry-pick pieces of the proposal they like. … The final product has to reflect a balanced approach" that includes higher taxes on upper-income Americans and corporations.

Among the other spending cuts Obama recommended that could attract bipartisan support:

•Reducing federal payments to farmers and subsidies to crop insurance companies.