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Obama budget plan will drop his past offer to trim cost-of-living hikes in federal benefits

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WASHINGTON - President Barack Obama will propose an election-year budget that would drop reductions he had previously embraced in federal benefits, officials disclosed Thursday. He also will ask Congress to approve about $56 billion in new or expanded programs, stepping back from aggressive efforts to tackle long-term government deficits and debt.

Obama is scrapping his previous offer to trim cost-of-living increases in Social Security and other benefit programs. That idea had been a central component of his long-term debt-reduction strategy, even though it was considered odious by many Democrats.

The decision amounts to a White House acknowledgement that Obama has been unable to conclude a "grand budget bargain" with GOP leaders, even by proposing a benefit reduction embraced by Republicans and opposed by many in his own party. But it is also a testament to the recently diminished importance of government red ink as a driving political issue amid falling deficits and public exhaustion over threats of federal shutdowns and defaults.

Officials said that some potential spending reductions included in last year's Obama budget had been designed to initiate negotiations with Republicans over how to reduce future deficits and the nation's debt. But Republicans never accepted Obama's calls for higher tax revenue to go along with the cuts. The new budget for fiscal 2015 is to be released March 4.

"The president was willing to step forward and put on the table a concrete proposal," White House spokesman Josh Earnest said. "Unfortunately, Republicans refused to even consider the possibility of raising some revenue by closing some loopholes that benefit only the wealthy and the well-connected."

Republicans promptly portrayed the White House move as abandoning any commitment to fiscal discipline.

"The one and only idea the president has to offer is even more job-destroying tax hikes, and that non-starter won't do anything to save the entitlement programs that are critical to so many Americans," said Brendan Buck, a spokesman for House Speaker John Boehner. "With three years left in office, it seems the president is already throwing in the towel."

Obama's proposal embraces the new, more modest approach to fiscal policy reflected in a recent bipartisan congressional budget agreement. It retains the spending levels agreed to in that budget, but it shifts some specifics. It also proposes closing so-far-unspecified tax loopholes to pay for $56 billion in what the White House calls an "Opportunity, Growth, and Security Initiative." That additional spending would be split evenly between military and domestic programs.

Among those programs would be a proposal he offered last year to help achieve universal pre-school education, funded through a tobacco tax, as well as new proposals to expand job training programs and a "Race to the Top" initiative to help states cut energy costs.

The budget also proposes an expansion of the Earned Income Tax Credit, a tax benefit for lower-income workers. The proposal aims to benefit workers without children.

The budget envisions passage of an overhaul of immigration laws, a step that congressional budget analysts say would contribute further to deficit reduction.

As such, the budget serves as a reflection of the White House's aspirations for this year and can serve as a campaigning blueprint for Democrats. Immigration is a long shot to be accomplished this year, and many of the spending proposals, though theoretically paid for, would face stiff opposition in the Republican-controlled House of Representatives.

While Earnest and other officials said that trims in benefit cost-of-living adjustments remain on the table should Republicans choose to bargain, Democrats cheered the decision to keep them out of the budget.

"I applaud President Obama for his important decision to protect Social Security," said Sen. Bernie Sanders, I-Vt., who last week organized a letter signed by himself and 15 Senate Democrats calling on the president to refrain from benefit cuts in his budget. "With the middle class struggling and more people living in poverty than ever before, we cannot afford to make life even more difficult for seniors and some of the most vulnerable people in America."

The White House will retain other spending reductions in benefit programs that it has proposed in the past, including a requirement that wealthier Medicare recipients pay more, officials said.

The proposed cost-of-living trims, supported by many Republicans and now put aside by Obama, would use a different inflation index to adjust annual benefit payments. Many economists believe the alternative formula, called a "chained consumer price index," better reflects consumer spending behaviour.

Even though the new Obama proposal does not include that significant debt-reduction idea, the White House says that passage of a separate overhaul of immigration law, combined with more slowly growing health care costs, would eventually result in a national debt that is lower as a share of the total economy than projected in past administration budgets. It says deficits as a share of the economy will be below 2 per cent after the 2023-2024 fiscal year.

The administration's budget is expected to be more bullish about the fiscal picture than a recent forecast by the nonpartisan Congressional Budget Office. Economists at CBO projected earlier this month that deficits would fall to 2.6 per cent of the economy in 2015 and then rise to about 4 per cent between 2022 and 2024.

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Follow Jim Kuhnhenn on Twitter: http://twitter.com/jkuhnhenn

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