Obama sends $3.9 trillion budget proposal to Congress

President Obama spoke about the 2015 proposed budget that he sent to Congress Tuesday at Powell Elementary School in Northwest D.C. (The Associated Press)

President Obama sent Congress a $3.9 trillion budget blueprint Tuesday that seeks fresh spending to boost economic growth but also aims to tame the national debt by raising taxes on the rich, squeezing payments to health-care providers and overhauling immigration laws.

Congressional Republicans immediately rejected the request for fiscal 2015, saying that the proposal would bust limits on agency spending that the White House endorsed in December.

But the blueprint, the fifth of Obama’s presidency, was not designed primarily to influence the latest round of Capitol Hill budget talks. Instead, it charts a course for Obama’s final years in office, laying out a familiar wish list of significant domestic initiatives that have been ignored.

To that end, the proposal calls for $76 billion over the next decade for early childhood education, financed through higher taxes on tobacco. It seeks $70 billion for highway construction, financed by taxing the accumulated foreign profits of multinational corporations.

It would expand the earned-income tax credit — one of the government’s largest and most important anti-poverty programs — for childless working adults, covering the $60 billion cost by eliminating tax breaks for hedge-fund managers and self-employed professionals.

Obama’s budget proposal: Spending by agency

And it would pump $56 billion next year alone into what Obama calls the “Opportunity, Growth and Security Initiative,” essentially a grab bag of fresh cash for agencies affected by sharp spending cuts known as the sequester. The extra money would benefit the Pentagon, preschool programs, the National Institutes of Health, climate research, job training programs and a new parental-leave benefit — much of it aimed at providing support to a struggling middle class.

The new spending is focused on areas where the administration has long said that the government’s commitment is inadequate to support economic growth and international competitiveness. The funding, meanwhile, comes almost entirely from big business and the wealthy, two groups Obama has targeted to pay their “fair share.”

“Our budget is about choices, it’s about our values,” the president said Tuesday during a visit to Powell Elementary School in the District. “As a country we’ve got to make a decision if we’re going to protect tax breaks for the wealthiest Americans or if we’re going to make smart investments necessary to create jobs and grow our economy, and expand opportunity for every American.”

House Speaker John A. Boehner (R-Ohio) derided the spending plan as “a clear sign this president has given up on any efforts to address our serious fiscal challenges.”

“After years of fiscal and economic mismanagement, the president has offered perhaps his most irresponsible budget yet,” Boehner said in a statement. “Despite signing last year’s bipartisan budget deal — and touting it as an accomplishment — the president now proposes violating that agreement with a spending surge.”

That surge would not, however, significantly affect the nation’s fiscal outlook. As a result of more than $1 trillion in tax increases over the next decade, Obama proposes to make a major dent in projected budget deficits. For next year, the White House forecasts a deficit of $564 billion, or 3.1 percent of the economy. By 2024, Obama sees the deficit falling to 1.6 percent of the economy, the smallest annual deficit since 2007, before the Great Recession dealt a terrible blow to government finances.

A shrinking deficit would reduce borrowing, causing the accumulated debt to grow more slowly. By White House forecasts, the portion of the national debt held by outside investors would grow from about $13 trillion today to nearly $19 trillion in 2024. But it would shrink as a percentage of a growing economy, dropping to 69 percent of the economy over the next decade, from 74.4 percent today.

Lawmakers in both parties acknowledged that the White House request — like the spending plan that House Budget Committee Chairman Paul Ryan (R-Wis.) will release this month — are at least as much about political strategy as substance.

“Everybody realizes that both sides are going to continue to put out their message documents to show what they would do if they gained seats in the House or Senate,” Sen. Charles E. Schumer (D-N.Y.) said Tuesday. “But at the same time, there’s a very strong desire to start legislating.”

The Obama budget builds on a spending deal reached late last year between Ryan and Senate Budget Committee Chairman Patty Murray (D-Wash.). The deal replaced a portion of the sequester cuts scheduled to affect agency budgets this year and next year, and set a top-line number for agency spending through September 2015.

That means the most important question for Congress — how much to appropriate to federal agencies next year — already has been settled. But the deal did not resolve other issues.

Congress will again be required to address the federal debt limit next March. Lawmakers will face the prospect of full-strength sequester cuts in fiscal 2016 and beyond. And after three years of rapidly declining, deficits once again will begin to rise in 2016, according to the nonpartisan Congressional Budget Office, creating new concern about the sustainability of federal health and retirement programs as the American population ages.

Obama’s budget request offers a roadmap for tackling those questions. If Democrats do well in this fall’s midterm elections, preserving their Senate majority and perhaps increasing their numbers in the House, Obama may feel empowered to seek new spending for education, manufacturing or research and development.

And although he may never win huge sums of new tax revenue from Republicans in Congress, he may be able to press his case against certain tax loopholes that many Republicans also dislike, such as taxing the earnings of hedge-fund managers and private-equity investors — known as “carried interest” — at lower capital gains rates.

If Democrats do poorly in November, however, Obama may have to seek common ground with a newly resurgent GOP that could control both chambers of Congress. His budget plan highlights some fertile territory.

For instance, Obama proposes an overhaul of business taxes that would cut rates, dramatically scale back corporate tax expenditures, and use one-time revenue to build roads and generate jobs. Last week, House Ways and Means Committee Chairman Dave Camp (R-Mich.) introduced a tax-reform plan that would strive for similar goals.

But although the budget opens the door to a few potential areas of bipartisan agreement, it retreats from other compromises. For instance, Obama dropped his proposal to use a less-generous measure of inflation to calculate Social Security benefits, a move that would significantly slow spending growth in the program.

The president included the proposal, known as the chained consumer price index, in last year’s budget request in a failed bid to strike a “grand bargain” on the debt with Republicans. The risky move did not gain traction with the GOP rank-and-file, but on Tuesday, Republicans nonetheless criticized Obama for backing down.

Senate Minority Leader Mitch McConnell (R-Ky.) said Obama had “opted for the political stunt for a budget that’s more about firing up the base in an election year than about solving the nation’s biggest and most persistent long-term challenges.”

Some Democrats, meanwhile, faulted the president for not standing up more strongly for higher spending in key areas.

“President Obama’s budget outline is a helpful tool to fill in the details of the budget agreed to by the Congress last year,” Sen. Benjamin L. Cardin (Md.) said in a statement. “However, I am extremely disappointed in the lack of investment in overall funding for the National Institutes of Health.”

The Obama administration does not paint an overly optimistic picture of economic growth, forecasting an average inflation-adjusted growth rate of just 2.6 percent per year over the next decade.

Still, the government’s financial outlook is significantly rosier than under current law, primarily because of Obama’s plans for higher taxes. In 2024 alone, the president expects to collect about $500 billion more than under current Congressional Budget Office projections.

Ed O’Keefe contributed to this report.

Zachary A. Goldfarb is a staff writer covering the White House, focusing on President Obama’s economic, financial and fiscal policy.
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