Obama had offered so-called "chained CPI" as a concession to Republicans to get them to agree on a multitrillion deficit reduction package that would also include higher taxes on top earners.
But now that there is a budget agreement in place for 2014 and the debt limit is off the table until March 2015, there are no longer any forcing mechanisms to get the two parties together to hammer out a long-term agreement. As centrist group Third Way put it on Thursday, it made sense for Obama to take chained CPI off the table "because there is no more table."
Instead, the Obama budget will include higher taxes through "loophole closings"—such as raising the levy on carried interest—to support tens of billions in proposed new spending on education, infrastructure and other items.
Of course, the tax hikes and spending initiatives aren't going anywhere in the GOP-controlled House, especially as the midterm elections approach.
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So the president's budget will be more "dead on arrival" than usual on Capitol Hill.
It will serve mainly as a campaign manifesto for the midterms, in which Democrats believe they have the higher ground in some key battleground states with their pitch of no more austerity spending cuts and a boost in the minimum wage to $10.10.
I sat down with top White House adviser Gene Sperling in Washington this week as he prepares to leave the administration, and he said he thought the administration's shift on fiscal policy would bring political benefits.
And he rejected the recent Congressional Budget Office report suggesting a minimum wage hike to $10.10 would cost around 500,000 jobs.
"A higher minimum wage creates greater employee retention, morale and productivity," Sperling said in the interview. "We are operating on the idea that someone who works full time has a level of dignity to not have to raise their children in poverty, and that is something everyone can agree on."
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Republicans, of course, seized on the CBO report as proof that hiking the minimum wage is a job killer. And they wasted no time ripping reports of Obama's new budget request.
"This reaffirms what has become all too apparent: The president has no interest in doing anything, even modest, to address our looming debt crisis," Brendan Buck, spokesman for House Speaker John Boehner, said in a statement. "With three years left in office, it seems the president is already throwing in the towel."
Sperling and other administration officials argue that Obama was ready to make a big deal with Boehner, including chained CPI, in 2011 but that Boehner balked at the last minute, unable to bring his tea party colleagues along. Boehner and other Republicans claim it was the White House that jacked up its revenue request to $1 trillion over 10 years at the last minute, killing the grand bargain.
What's clear now is that the sharp reduction in short-term deficits and the defusing of the debt ceiling bomb mean there is little pressure to restart any big deal talks. The Congressional Budget Office estimates the 2014 deficit at $514 billion, still a high number but well below the trillion-plus-dollar deficits of the last several years.
Of course, the CBO also predicts that deficits will begin to rise again starting in 2016, reaching 4 percent of GDP by 2024.