President Barack Obama sent a $3.8 trillion budget to Congress today calling for more tax revenue and slower growth for Social Security benefits in a political gamble intended to revive deficit-reduction talks.
The president is proposing to replace across-the-board budget cuts known as sequestration with what White House budget officials say is $1.8 trillion in additional deficit reduction over 10 years that includes collecting more taxes from the wealthy and trimming some federal programs.
For the first time, Obama is including in his budget an offer made last year to congressional Republicans to change the cost-of-living calculation for Social Security and tax brackets, which would increase benefits more slowly and subject more income to taxation.
“When it comes to deficit reduction, I’ve already met the Republicans more than halfway,” Obama said at the White House today. He challenged Republicans to demonstrate they are “as serious about the deficits and debt as they claim to be.”
The fiscal 2014 budget hit resistance even before its release as Republicans repeated their opposition to raising tax revenue and some Democrats criticized the president’s proposal to reduce cost-of-living benefit increases in Social Security.
The administration forecasts that the federal budget deficit for the fiscal year that begins Oct. 1 will be $744 billion, or 4.4 percent of the economy. The Office of Management and Budget estimates that the shortfall this year will be $973 billion, or 6 percent of the economy. The budget projects the deficit will decline to 2.8 percent of the economy by 2016 and 1.7 percent by 2023.
Administration forecasters cut their estimate for U.S. economic growth this year to 2.3 percent, matching last year’s rate, down from the projected 2.7 in July. For all of 2014, the economy may expand 3.2 percent, budget figures showed. Private forecasters surveyed by Bloomberg put growth at 2 percent for calendar year 2013 and 2.7 percent for calendar year 2014.
The administration’s economic assumptions, made in mid- November, are “a little bit out of date,” though still “in the ballpark” compared with private forecasts, Alan Krueger, chairman of the Council of Economic Advisers, said at a briefing for reporters in Washington.
He said the forecast assumed that sequestration wouldn’t take effect, and that means economic growth probably will be lower than the estimates published in the budget.
Unemployment is projected to average 7.7 percent this year, down from an average of 8.1 in 2012. The jobless rate is forecast to decline to an average of 7.2 percent in 2014, budget figures showed.
The amount of debt held by the public is estimated at 76.6 percent of the $16.2 trillion U.S. economy this year, declining to 73 percent of a projected $26 trillion economy in 2023, the administration said.
The budget blueprint renews Obama’s request to raise $580 billion in revenue over 10 years by limiting deductions and closing tax breaks used by top earners.
He again seeks adoption of the Buffett rule, named for billionaire investor Warren Buffett, to impose a 30 percent minimum tax on households with more than $1 million in annual income. The plan also would cap tax-favored retirement accounts of some private-equity executives and self-employed professionals at $3 million.
The revenue proposals have been previously rejected by Republicans, and party leaders indicated they’ve seen nothing that will change their minds.
He also said the president “does deserve some credit” for proposing changes to control the cost of entitlement programs and that he still hopes to reach a budget deal with the White House.
The linchpin is Obama’s proposal to switch to the so-called chained Consumer Price Index to calculate Social Security cost- of-living adjustments. Obama said the changes to entitlements must be part of a deal that includes more revenue.
“If we’re serious about deficit reduction, then these reforms have to go hand-in-hand with reforming our tax code, to make it more simple and more fair, so that the wealthiest individuals and biggest corporations cannot keep taking advantage of loopholes and deductions that most Americans don’t get,” he said. “That’s the bottom line.”
The president’s plan to change the Social Security formula drew fire from fellow Democrats and their allies.
“This is bad policy that will slow economic recovery even further,” Richard Trumka, president of the AFL-CIO said on the union’s website. “America elected President Obama to protect us from bad Washington ideas like ‘chained’ CPI, not to advocate for them.”
Even if Obama’s proposals were enacted, entitlement programs would consume a larger portion of the nation’s economy at the end of the decade, rising from 13.6 percent of gross domestic product this year to 13.9 in 2023, according to budget figures. Net interest costs would more than double, from 1.4 percent of GDP this year to 2.9 percent of GDP in 2023.
Policy makers are wrangling over the budget amid signs the U.S. economy, the world’s largest, is struggling to accelerate after growing 0.4 percent in the last quarter of 2012. While payrolls jumped by 268,000 workers in February, the biggest gain in a year, the advance slowed to 88,000 in March, Labor Department data showed. In the 12 months ended in February, the economy created a net 1.9 million jobs.
Obama has said he wants $1 in additional revenue for every $2 in spending cuts so that the government can continue funding infrastructure, education and research that would sustain economic growth.
Obama proposes spending $50 billion for roads, bridges and other public works and $1 billion to spur manufacturing innovation. He also is seeking $1 billion in competitive Race to the Top grants for states that find ways to cut college costs and limit tuition increases and $750 million for states that offer preschool programs for four year olds.
Investors want to know “how much drag is fiscal policy going to provide” on the economy and whether there is “a credible, long-term deficit reduction” plan to restrain growth in entitlement programs, said Gus Faucher, senior economist at PNC Financial Services Group Inc. in Pittsburgh.
The benchmark Standard & Poor’s 500 Index (SPX) has risen 11 percent since the beginning of the year. It advanced 1.2 percent to 1,588.02 at 2:20 p.m. in New York, posting its biggest gain in more than a month and trading at its highest level ever. The 10-year Treasury yield rose four basis points to 1.79 percent.
The administration said the budget is designed to replace the $1.2 trillion sequestration, the automatic across-the-board spending cuts over nine years that started taking effect March 1. The reductions were part of a 2011 deal to increase the U.S. debt limit.
Obama’s spending blueprint arrives at the Capitol more than two months late and after the Republican-controlled House and Democratic-held Senate adopted nonbinding budget resolutions so different in their goals that there’s almost no prospect for compromise. The two parties are divided over priorities and over how to shrink a deficit that has exceeded $1 trillion in each of the past four years.
The House measure would balance the budget in a decade through $4.6 trillion in spending cuts and repeal Obama’s 2010 health-care law. It projects a deficit next year of $496 billion. The Senate plan would trim the deficit to $693 billion in 2014 and envisions $975 billion in tax increases, more stimulus spending than sought by the White House and $5.2 trillion in added debt over a decade.
As part of his effort to reach a deal on deficit reduction, Obama will host a private dinner tonight at the White House with about a dozen Senate Republicans. It will be his second such attempt to reach out for common ground in a month. One administration official said Obama’s aides expect protracted negotiations before a deal is reached.
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