Feb. 13 (Bloomberg) -- President Barack Obama sent Congress a $3.8 trillion budget plan today with stimulus spending and tax increases for the wealthiest Americans, spelling out election-year priorities that drew immediate Republican opposition.
Obama is proposing more money for jobs, highways and bridges, schools, student aid and manufacturing research as well as higher taxes for corporations, banks and oil, natural gas and coal companies, even as the nation’s debt grows faster than the administration predicted in September.
The spending measures will ensure the recovery is sustained and the tax increase will help draw down the deficit, Obama said today at Northern Virginia Community College in suburban Washington.
“We can cut back on the things that we don’t need, but we also have to make sure that everyone is paying their fair share for the things that we do need,” Obama said.
Obama’s fourth budget includes measures that are similar to his September jobs and deficit-reduction proposal that Republicans in Congress largely blocked or rejected as unworkable or unnecessary. The budget lays out Obama’s priorities for the economy as Republicans campaigning for president question the direction of the federal government.
$1.33 Trillion Deficit
The budget shows Obama will fail to keep his 2009 pledge of cutting the deficit in half by the end of his first term. The forecast shows a fiscal 2012 deficit of $1.33 trillion, or 8.5 percent of the economy, marking the fourth straight year the shortfall will exceed the trillion-dollar mark. That’s up from the administration’s estimate in September of $956 billion.
Next year, the deficit is projected at $901 billion, or 5.5 percent of the economy, and up from the $648 billion that Obama’s economists predicted five months ago. The administration’s forecasts for 2014-2021 are all higher than the outlook issued five months ago.
Public debt is taking a bigger bite out of the economy, rising to $18.7 trillion by 2021, or almost 77 percent of the economy, compared with $17.1 trillion, or 70 percent of the economy expected in September.
The deficit forecasts may have little validity beyond this year, partly because they assume enactment of Obama’s tax increase proposals in the face of opposition from Republicans, who control the House and have enough votes in the Senate to block legislation.
House Speaker John Boehner, an Ohio Republican, called Obama’s budget plan “a gloomy reflection of his failed policies” that is “a collection of rehashes, gimmicks, and tax increases that will make our economy worse.”
‘Decline of America’
Paul Ryan, a Wisconsin Republican and chairman of the House Budget Committee, said the president’s budget was “irresponsible” and a “recipe for a debt crisis and the decline of America.”
“His refusal to honestly confront our nation’s most pressing challenges does real harm to the economic security of millions of American families,” Ryan, who is working on a Republican alternative, said.
Obama’s deficit projections depend on allowing expiration of Bush-era tax cuts for couples earning $250,000 or more a year, limiting the value of itemized deductions to 28 percent for those families, and imposing a minimum tax for individuals with annual incomes of at least $1 million. It would also raise taxes on dividends received by the wealthy to 39.6 percent from the current 15 percent.
Those proposals, along with an across-the-board $1.2 trillion cut in spending and possible debt-ceiling increase, probably won’t be acted on before the Nov. 6 elections, and decisions either way may affect the deficit by hundreds of billions of dollars.
The minimum tax on $1 million-earners, named for billionaire investor Warren Buffett, who originated the idea last year, would replace the Alternative Minimum Tax, “which now burdens middle-class Americans rather than stopping the richest Americans from paying too little as was originally intended,” according to the budget document. The plan doesn’t give a detailed proposal for the tax beyond setting a 30 percent threshold for the minimum rate.
Obama also calls for revamping the tax code to “cut and simplify tax breaks that are now inefficient, unfair, or both,” also without a specific proposal for how the new tax would be structured. The changes should cut the deficit by $1.5 trillion over the next decade, according to the budget plan.
The administration proposes an overhaul of the corporate tax system that would eliminate tax benefits to lower the rate from the current maximum of 35 percent. The budget didn’t give specifics. The administration will provide “more detail” by the end of the month, Gene Sperling, the head of Obama’s National Economic Council, said at a briefing today.
The budget reiterates Obama’s proposal to tax so-called carried-interest income earned by hedge fund managers and private equity partners at ordinary income rates, rather than at the 15 percent capital gains rate, raising $13 billion over a decade.
Obama’s plan would impose $156 billion in new or expanded government fees including higher Medicare premiums for wealthier beneficiaries beginning in 2017. It would also increase the terrorism-security fee charged to airline passengers as well as the premiums paid by companies for federal pension insurance, among other changes.
Big financial institutions would face $61 billion over 10 years in a “Financial Crisis Responsibility Fee” to help pay for the bank bailout program and a home-mortgage refinance initiative.
Credits and Subsidies
Obama would end credits and deductions that help subsidize the oil and natural gas industries, for a savings of $41 billion over a decade. Depreciation rules on corporate purchases of aircraft would be abolished, for a savings of $2 billion over 10 years.
Spending cuts over a decade include $278 billion in farm subsidies, federal workers’ retirement plans and the Pension Benefit Guarantee Corp., which insures company pensions.
The budget proposes to cut payments to Medicare providers by $268 billion over 10 years. It would require pharmaceutical companies to provide bigger rebates on drugs sold through Medicare, reduce federal reimbursements for patients’ bad debts and cut payments to teaching hospitals, among other changes.
It would also cut over the same period $51 billion out of Medicaid, the joint federal-state health care program for the poor, in part by shifting more of the program’s costs to the states.
The budget anticipates war costs will fall next year by about one-quarter to $97 billion. It would be the first time since 2004 that annual costs have dipped below $100 billion.
Most federal agencies would see their budgets cut or essentially frozen. The Pentagon would receive $525 billion, about $5 billion less than last year. Funding for the F-35 Joint Strike Fighter, the military’s costliest weapons program, would fall by $1.6 billion.
The Environment Protection Agency would shrink by 2 percent to $8.3 billion. The Department of Housing and Urban Development would fall by 7.5 percent. Agriculture would take a 3 percent cut.
One of the biggest winners would be the Department of Education, which would see a 3.5 percent increase to $69.8 billion. The administration’s “Race to the Top” program, which awards competitive grants to states, would receive a 55 percent increase. Funding for college work-study programs would increase by 15 percent.
The Department of Veterans Affairs would see a 4 percent increase, to $61 billion, in part because of growing medical-care costs.
Obama is seeking $350 billion in short-term jobs measures, including additional infrastructure spending, extending unemployment benefits and increasing aid to cash-strapped state governments. He would also extend an expiring payroll tax break for the rest of this year.
In other areas to boost the economy, the budget sets aside almost $121 billion over a decade for expanding U.S. manufacturing, including tax credits for clean-energy vehicles, tax breaks for bringing jobs back from overseas and credits for companies locating in hard-hit communities.
Small businesses would be in line for $25 billion in various tax cuts, including ending capital gains taxes on small business stockpiles. Expensing provisions scheduled to expire Dec. 31 would be extended through calendar 2013, for a value of $26 billion.
The White House said it’s supporting a six-year, $476 billion renewal of a highway bill that would add thousands of construction jobs.
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