Joe Biden Sought ‘Grand Bargain’ to Reduce Deficit Through Cuts to Social Security

House Majority Leader Eric Cantor of Va. look on at left as Vice President Joe Biden meets
J. Scott Applewhite/AP Photo

Joe Biden, the Democratic presidential nominee, worked to forge a “grand bargain” with congressional Republicans on deficit reduction during the Obama years. As part of the effort, the former vice president openly advocated for putting entitlement programs, including Social Security, on the negotiating table.

Shortly after taking office in 2009, President Barack Obama and his administration were struck with a complex problem. The economy, which was still in the midst of the Great Recession, was struggling to rebound, with job losses, bankruptcies, and home foreclosures running rampant. At the same, the deficit was at an all-time, hitting 8.9 percent of Gross Domestic Product, because of the Bush-era tax cuts and recession required stimulus spending.

While on the surface the issues seemed to be separate, in reality, they were intertwined. A mounting deficit, without restrictions in the country’s money supply, could cause widespread inflation, much like it did in the late-1960s and early-1970s. Even if inflation were avoided, a continuing deficit could still hamper long-term economic growth and prevent foreign investment.

Although the considerations given to the deficit were mostly practical by Obama’s inner circle, at least some of the calculations must have also been political. As early as April 2009, only four months into Obama’s Oval Office tenure, the seeds of the Tea Party movement were already beginning to sow. For Obama to achieve many of the promises made on the 2008 campaign trail, it was vital for Democrats to keep control of Congress in the upcoming midterms. That outcome, however, could be endangered if Republicans aligned with the Tea Party succeeded in painting the president’s fiscal policies as “reckless.”

Given such concerns, Obama began signaling his desire to tackle the deficit in early 2010. In February of the year, Obama created via executive order a National Commission on Fiscal Responsibility and Reform. The commission, which would be bipartisan, would consist of 18 members, with 12 appointed by Congress and six by the president. Its goal would be devising a long-term proposal for lowering the deficit and achieving a balanced budget by at least 2015.

To chair the commission, Obama tapped former Senator Alan Simpson (R-WY) and Erskine Bowles, a one-time chief of staff to ex-President Bill Clinton. The commission, simply known as Simpson-Bowles, was set to release its recommendations by December 2010 in hopes that the incoming Congress would act on them the following year.

Even though Biden was not a member of the commission, the vice president took an interest in its work because it overlapped with his official role in helping run the administration’s economic recovery efforts. Biden, who had long favored freezing all federal spending, including social security, to rein in the deficit, worked with not only Simpson and Bowles on crafting a proposal, but also the commission’s executive director, Bruce Reed. As a former Clinton administration official in the early-1990s, Reed had partnered with then-Senator Biden on authoring the 1994 crime bill.

The eventual proposal that Simpson-Bowles authored sought to reduce the deficit by more than four trillion dollars. It would have stabilized the growth of the federal debt by 2014, while reducing it by more than 60 percent by 2023. Although the goals looked good, the cost would have fallen heavily on individuals who rely on federal spending and entitlement programs, like Social Security.

Simpson-Bowles proposed to cut Social Security benefits for those in the top half of the income tax bracket, while raising the retirement age to 69. The plan also would have reduced the cost of living adjustments that are made to benefits as inflation rises.

The proposal, when it was released in December 2010, was derided by both Republicans and Democrats. Republicans, who had just won control of the United States House of Representatives, were emboldened to believe that voters, backed by Tea Party sympathy, would want larger cuts to achieve a balanced budget sooner. Democrats, on the other hand, especially those that self-identified as progressives, viewed the cuts to programs such as Social Security as draconian.

Although the Simpson-Bowles proposal was never introduced in Congress, its ideas for reducing the deficit quickly took hold among Obama administration officials, specifically Biden. Shortly after the commission wound down, the vice president announced that Reed would become his chief of staff, seeming to signal that deficit reduction would be Biden’s new priority.

Starting in early-2011, Biden and Reed began holding talks with top congressional leaders, including then-House Majority Leader Eric Cantor, on how to how to achieve a “grand bargain” on the deficit. Those talks, profiled in Bob Woodward’s book The Price of Politics, seem to indicate that Biden was eager to strike a deal, even offering to put Social Security and Medicare on the “table.”

By the summer of 2011, Biden had roped more members of Congress into the talks, with the group now expanded to six Democrats and six Republicans. As Woodward noted, Biden was close to hammering out a deal that would have cut federal spending by $2 trillion, including programs like Social Security, Medicare, and Food Stamps. When Republicans fretted over proposed tax increases, especially allowing the Bush tax cuts to expire, Biden suggested a compromise by raising the retirement age for Social Security and also creating a mechanism to means-test the program.

As part of the compromise, Biden also pitched Republicans on a relatively obscure change to the cost of living formula in hopes of sealing a deal. Biden, in particular, sought to amend the formula that determined the cost of living adjustments for programs like Social Security. At the time, Biden suggested that such programs in the future be tied to the United States Chained Consumer Price Index (Chained CPI) rather than the current United States Consumer Price Index.

Chained CPI is predicated on the notion that when the cost of living increases because of changes in the prices of goods, consumers will adjust their purchasing patterns to make up for the rise. The theory suggests that even though cost of living might increase on paper, the impact is negligible on consumers.

Had Biden succeeded in tying Social Security and other entitlements to Chained CPI, it would have cut the expected growth in program benefits that recipients had become accustomed to over time. Attaching Social Security to Chained CPI has long been opposed by progressives and advocacy groups like the AARP on the grounds that seniors are more impacted by inflation since a significant portion of their incomes go to medical costs, which are always rising at rates higher than the rest of the economy.

Even though Biden attempted to make Chained CPI central to the deficit negotiation, the talks ultimately fell apart when congressional Republicans were unable to sell any proposed revenue increases to their members.

Despite the failure, Biden, with Obama’s backing continued trying to forge a “grand bargain” on deficit reduction in 2012 and 2013. Each time the talks included tying Chained CPI to Social Security and other entitlements programs.

The former vice president’s position on deficit reduction comes back into the spotlight as Biden has promised to not only protect, but also expand Social Security if elected in November.

Biden’s campaign did not return requests for comment on this story.


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