* President seeks compromise with Congress on deficit
* Obama to propose less generous inflation gauge in budget
* Boehner balks at accepting more revenue
By Mark Felsenthal
WASHINGTON, April 5 (Reuters) - U.S. President Barack Obama will offer cuts to Social Security and other benefit programs in a budget proposal next week aimed at winning over enough congressional Republicans to pass a broad deal to reduce the deficit.
While Obama’s previous budgets have largely been ignored in Congress, the White House wants to use this year’s proposal, to be released on Wednesday, to move beyond the fiscal fights that have consumed Washington since 2010.
But several attempts to reach an agreement balancing spending cuts with tax increases have failed, and prospects for a “grand bargain” remain dim. House of Representatives Speaker John Boehner, who let taxes rise for the wealthiest Americans earlier this year, has ruled out any further revenue increases and was lukewarm about Obama’s latest proposal.
“When the president visited the Capitol last month, House Republicans stated a desire to find common ground and urged him not to make savings we agree upon conditional on another round of tax increases,” he said in a statement. “If reports are accurate, the president has not heeded that call.”
Obama also faces resistance from fellow Democrats over his offer to apply a less generous measure of inflation to calculate cost-of-living increases that would affect Social Security and other government programs when he reveals his budget.
That change would result in lower payments to some beneficiaries of the Social Security pension program and is staunchly opposed by many of the president’s party as well as labor and retiree groups.
“I am terribly disappointed and will do everything in my power to block President Obama’s proposal to cut benefits for Social Security recipients,” said Vermont Senator Bernie Sanders, an independent who votes with the Democrats.
But Obama will only accept the cuts to so-called entitlements like Social Security and Medicare if congressional Republicans agree to higher taxes, a senior administration official said. White House spokesman Jay Carney said the administration needed to compromise with a Republican-led House.
“The budget reflects his priorities within a budget world that is not ideal,” Carney told reporters at a briefing.
Sidetracked by a series of fights over taxes, spending, and the nation’s borrowing since the 2010 midterm elections that gave Republicans control of the House, Obama wants to focus more on issues like gun control and immigration reform in his second term.
“What I think he would like to have is a grand bargain which puts these fiscal issues behind us for a good number of years,” said Rudolph Penner, a former Congressional Budget Office director. “If he doesn’t get the grand bargain, his second term is not going to be a very happy one.”
Obama has been reaching out to individual Republicans to try to soften the tone of the debate, holding dinners and meetings in what is being called a charm offensive.
He plans to keep up that effort on Wednesday at a dinner with a dozen Republican senators at the White House.
“The president is engaged in conversations with potential members of the common-sense caucus with Republicans who will at least entertain the idea of dealing with our budget challenges in a balanced way,” Carney said.
By the same token, he may have to focus his charm on Democrats to get them to accept using the different inflation gauge, the “chained Consumer Price Index.”
Supporters of the switch say the standard CPI index overstates price rises, but opponents say moving to the chained CPI would unfairly deprive older Americans of benefits they have been promised.
“Politically, this is a terrible idea,” the left-leaning group MoveOn.org wrote to its members. “Social Security is such a popular and successful program that even Republicans didn’t touch it in their budget.”
Overall, Obama’s proposal would cut the deficit by $1.8 trillion over 10 years, the administration official said, and is expected to undo at least some of the $85 billion in across-the-board spending cuts known as sequestration that went into effect last month.
“Undoing the sequester is very important,” said Michael Linden, managing director for economic policy at the left-leaning Center for American Progress. “Lots and lots of little bad things are happening all over the country and it’s going to get worse over the next few months.”
Republican critics called the president’s $1.8 trillion deficit reduction estimate inflated, saying that if sequestration cuts were reversed, the reductions would be much smaller than promised.
But Carney said the president’s budget proposal, if passed, would add to deficit reduction. Including $2.5 trillion in deficit cuts already agreed to through spending reductions and tax increases, the additional $1.8 trillion would bring the total to $4.3 trillion, more than the $4 trillion in deficit cuts both sides have said was their goal.
The nonpartisan Congressional Budget Office estimated in February that the deficit would shrink to $845 billion this year, or 5.3 percent of GDP, its smallest size since 2008.
Obama’s budget for the fiscal year that starts on Oct. 1 will also contain a proposal to expand access to early childhood education, the administration official said. That program would be paid for by raising tobacco taxes.
In addition, the president wants to increase revenues by placing a $3 million upper limit on tax-preferred retirement accounts and by barring people from collecting disability benefits and unemployment insurance at the same time, the official said.
Analysts familiar with the administration’s thinking, and who spoke on condition of anonymity, say the White House is considering a plan to raise revenues by limiting tax deductions to 28 percent for wealthier taxpayers.
In addition, the president was considering cuts to Medicare, the health program for the elderly, through reducing payments to healthcare providers but also by requiring wealthier beneficiaries to pay more out-of-pocket, analysts said.