Obama Submits a $3.7 Trillion Budget as Republicans Pledge to Oppose Plan
President Barack Obama sent Congress a $3.7 trillion budget that projects the federal deficit will exceed $1 trillion for the fourth consecutive year in 2012 before falling to more “sustainable” levels by the middle of the decade.
The deficit for the current fiscal year is forecast to hit a record $1.6 trillion -- 10.9 percent of gross domestic product -- up from the $1.4 trillion the administration estimated previously. It would be $1.1 trillion in 2012, 7 percent of GDP. By 2015 it would decline to $607 billion, or 3.2 percent of GDP.
The president’s budget plan would reduce federal shortfalls by $1.1 trillion over a decade through spending cuts in areas ranging from heating subsidies for the poor to grants for airports and water-treatment plants. It also would increase revenue, including letting taxes rise for married couples with more than $250,000 in annual income and ending some tax breaks for oil, gas and coal companies.
Obama said he will meet his pledge to cut the deficit in half by the end of his first term. Speaking at a middle school in suburban Baltimore this morning, the president said the government must spend to support education, research and infrastructure to keep the U.S. economically competitive.
“The only way we can make these investments in the future is if our government starts living within our means,” Obama said. “What we’ve done here is make a down payment.”
Release of the budget for the fiscal year that begins Oct. 1 sets up a battle with Republicans who control the House and who already have deemed the plan insufficient to reduce the federal debt. The budget falls short of the deficit reduction that Obama’s fiscal commission proposed in December and would have a modest impact on the $12 trillion in total deficits the Congressional Budget Office projects the government will run up over the next 10 years.
That’s primarily because Obama isn’t offering an overhaul of Medicare, Medicaid or Social Security, the entitlement programs that represent about 40 percent of the budget and are primary drivers of long-term deficits.
White House budget director Jacob Lew defended the spending blueprint against criticism that it fails to recommend any major steps to reduce the cost of entitlements.
“I know that would make a lot of people happy for there to be a big, bold proposal,” Lew said in a Bloomberg Television interview. “My experience over the last 30 years is that when you put a proposal out there, before you’ve laid the foundation for a bipartisan discussion, it actually doesn’t move the process forward,” and instead sets it back.
House Budget Committee Chairman Paul Ryan, a Wisconsin Republican, said in a statement that Obama “has failed to tackle the urgent fiscal and economic threats before us.”
“The president’s budget accelerates our country down the path to bankruptcy,” he said.
Some of Obama’s fellow Democrats were critical as well. Senate Budget Committee Chairman Kent Conrad of North Dakota said the government needs “a much more robust package of deficit and debt reduction.”
“It is not enough to focus primarily on cutting the non- security discretionary part of the budget,” Conrad said in a statement. “We need a comprehensive long-term debt-reduction plan, in the size and scope of what was proposed by the president’s fiscal commission.”
More to Be Done
Obama said both parties will have to take steps beyond those contained in his budget “because cutting annual domestic spending won’t be enough to meet our long-term fiscal challenges.”
“So what we’ve done here is make a down payment, but there’s going to be more work that needs to be done,” he said.
Treasury 30-year bonds gained for a second day as yields at almost the highest level in 10 months bolstered demand. Yields fell three basis points to 4.66 percent at 2 p.m. in New York after reaching as high as 4.71 percent. IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, increased 0.2 percent to 78.612, its third consecutive gain.
“If the budget were adopted as presented, we would view this as a marginal positive for the outlook for U.S. government finance and the debt trajectory,” said Steven Hess, a senior credit officer in New York at Moody’s Investors Service. “But the likelihood of it being adopted as presented is extremely low.”
The budget forecasts the deficit will be $627 billion in 2017, or 3 percent of GDP, a level the administration says is sustainable. The shortfall would grow in subsequent years, reflecting the impact of Baby Boomers qualifying for Social Security and Medicare.
By 2021, the deficit would widen to $774 billion, according to White House estimates. By comparison, the fiscal commission called for $4 trillion in cuts to squeeze the deficit down to $279 billion in 2020. That included reducing benefits in the entitlement programs.
This year’s deficit as a proportion of GDP is the highest since the 21.5 percent in 1945 at the end of World War II. The International Monetary Fund, in a global report released in October, projected the German deficit would be 3.7 percent of GDP in 2011, while comparative figures were 8.9 percent for Japan, 8.1 percent for the U.K. and 2.9 percent for Canada.
The administration forecasts interest payments on the nation’s debt will grow rapidly over the coming decade with costs topping the annual budget of the Pentagon by 2017. By 2021, interest costs will rise to $928 billion from the current $205 billion.
The budget calls for $1.5 trillion in tax increases over the next 10 years, with the bulk of that coming from allowing former President George W. Bush’s tax cuts for couples earning more than $250,000 to expire.
Another $300 billion would come from limiting the ability of the wealthy to take itemized deductions. It would also impose a $30 billion “financial crisis responsibility fee” on banks, a $15 billion tax increase on the “carried interest” paid to investment managers, and rescind a dozen tax breaks for the oil, gas and coal industry to raise more than $46 billion over 10 years.
The administration is calling for $85 billion in new or increased fees over the next 10 years that would affect a number of industries.
It wants to raise $28 billion by more than doubling airline security passenger fees. Another $16 billion would come by raising fees companies pay to the Pension Benefit Guaranty Corp. to insure their pensions.
Oil and gas companies would see their inspection fees more than sextuple, to $65 million per year, to cover the costs of increased oversight in the wake of the spill from a BP Plc well in the Gulf of Mexico. The government would charge new or higher fees for patents, generic-drug reviews and manufacturers seeking to label products with its “Energy Star,” among other changes.
Many of the tax and other revenue-raising proposals Obama makes have been rejected or brushed aside by Congress previously, when Democrats controlled both chambers.
About two-thirds of the deficit reduction comes from cuts. Scores of programs would be slashed under the administration’s budget to make room for increases elsewhere while still staying within Obama’s promise to freeze non-security discretionary spending for the next five years. About half of all federal departments and agencies would see their budgets reduced from levels in 2010, the last time agencies had an enacted budget, according to the administration documents.
Among the exceptions is the Securities and Exchange Commission, where the administration is asking Congress to approve a budget of $1.4 billion, up $304 million from fiscal 2010. With tougher rules brought on by the financial crisis, the agency’s enforcement division would get a 27 percent increase to $460 million.
Another is the Internal Revenue Service, which would get a 9.4 percent increase, to $13.3 billion, to hire more than 5,000 new employees, most of whom would pursue tax cheats.
The poor would receive less help paying heating bills, and graduate students would pay more for student loans. The budget also cuts $1 billion from airport grants and $950 million from water-treatment plants and other infrastructure.
Obama repeated a request to Congress to overhaul the corporate tax code to reduce rates, make it simpler and abolish “special-interest loopholes.” The budget doesn’t offer a specific plan.
The administration wants to spend $53 billion over the next six years on high-speed rail, and proposes spending $15.7 billion to build a nationwide wireless network for emergency workers and to widen access to mobile high-speed Internet. Obama also included his plan for a National Infrastructure Bank, seeding it with $50 billion intended to lure private investment for specific projects.
The White House said it’s asking Congress to renew and make permanent the Build America Bonds program, where state and local borrowing costs are subsidized to help localities finance bridge, road and other projects. More than $187 billion of Build America bonds were sold before the program expired Dec. 31.
Companies that stand to benefit from spending on public works are construction equipment makers such as Caterpillar Inc., in Peoria, Illinois; Deere & Co., in Moline, Illinois, and Westport, Connecticut-based Terex Corp., as well as underwriters such as Citigroup Inc. and Goldman Sachs Group Inc.
Obama said he was seeking $553 billion for the Defense Department, up 4.3 percent from fiscal 2010, the last year of full funding for the Pentagon. For the wars in Afghanistan and Iraq, Obama is asking Congress to approve $126.5 billion, down from this year’s $164.7 billion and the lowest since 2006, reflecting the winding down of the war in Iraq. The figures include war-related costs under the State Department.
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