Obama’s 2013 budget proposal launches election-year debate

President Obama will send Congress a 2013 spending plan that would raise taxes on the rich and pump nearly $500 billion into new transportation projects over the next decade, launching an election-year debate over the budget that promises starkly different visions for managing government debt and the sluggish economy.

As they prepare to face voters in November, neither the president nor congressional Republicans are expected to roll out many new or potentially painful prescriptions for slowing the rise of the $15 trillion national debt. After failing repeatedly last year to forge a bipartisan consensus, few in either party see much point in trying again now.

Instead, Obama will on Monday reprise recommendations he unveiled last fall that seek to reduce borrowing by more than $3 trillion over the next decade while spending more in the short term to bring down persistently high unemployment.

The president’s blueprint calls for reductions in spending on federal health programs and the military, a small raise for federal workers and more than $1.5 trillion in new taxes on corporations, hedge-fund managers and the wealthy, in part through the expiration of the George W. Bush-era tax cuts on annual incomes of more than $250,000.

Obama also has called for changes to the tax code that would require households earning more than $1 million a year to pay at least 30 percent of their income in federal taxes, but senior administration officials said Friday that the blueprint will provide no additional details on how such a levy would be structured.

To achieve his debt-reduction goal, Obama would rely on an accounting maneuver that permits him to claim about $850 billion in savings over the next decade by ending the wars in Iraq and Afghanistan, a move Republicans have rejected as a gimmick. Obama would use a portion of those savings to finance new road and rail projects, rather than dedicating the full sum to lower deficits.

Obama’s budget also calls for new investments in education, manufacturing and federal research and development, and it would devote an additional $350 billion to boosting economic growth. That sum includes extending a temporary payroll tax holiday and emergency unemployment benefits through the end of the year. Both are scheduled to expire at the end of this month and are currently the focus of intense debate in Congress.

The president’s plan would push this year’s deficit above current projections, with the budget gap growing to $1.33 trillion — slightly higher than last year’s $1.3 trillion deficit and $200 billion more than congressional budget analysts recently projected for the fiscal year that ends in September.

The deficit would fall to $900 billion in 2013, and government borrowing would continue to slow through 2022, leaving the debt elevated by historic standards but no longer growing faster than the overall economy.

Senior administration officials said the blueprint offers a balanced approach that would protect the middle class while asking for greater sacrifice from the most fortunate. Every dollar in tax increases would be matched with $2.50 in spending cuts, they said, counting $1 trillion in previously adopted cuts to agency budgets.

Republicans immediately attacked the higher deficit figures, noting that Obama had failed to achieve his 2009 goal of cutting the deficit in half by the end of his first term.

“This unserious budget is a recipe for debt, doubt, and decline,” Michael Steel, a spokesman for House Speaker John A. Boehner (R-Ohio), said in an e-mail. “It would make our economy worse by imposing massive tax increases on small business and still pile up enormous debt that stirs greater economic uncertainty.”

Next month, House Republicans plan to offer a more austere fiscal blueprint that rejects tax increases, preferring to stabilize borrowing by making deep cuts to government services, including Medicaid, the federal health program for the poor. Like last year’s GOP budget, it will call for repealing Obama’s initiative to expand health coverage for the uninsured while ignoring calls for short-term economic stimulus.

Aides say they expect House Budget Committee Chairman Paul Ryan (R-Wis.) to make one significant adjustment: replacing his plan to wholly privatize Medicare for new retirees in 2021 with a new privatization strategy that would preserve the 47-year-old federal health program — making the budget less vulnerable to partisan attack.

The GOP presidential candidates have largely embraced Ryan’s cuts-only vision, often tacking on more dramatic reductions. Former Massachusetts governor Mitt Romney said Friday that he would raise the eligibility age for Social Security, which is currently on track to hit 67. And former Pennsylvania senator Rick Santorum has called for immediate cuts in Social Security benefits, rejecting the more common approach of protecting current retirees and people older than 55.

Meanwhile, Romney, Santorum and former House speaker Newt Gingrich are calling for massive tax cuts that even some Republicans worry could make it tough to reduce borrowing.

“I’ve become very concerned about deficits,” said Sen. Jeff Sessions (Ala.), the senior Republican on the Senate Budget Committee. “Clearly tax reform should help us create economic growth. But I don’t know that we can, at this point in time, expect to have any significant tax cuts that adversely impact the deficit.”

Both Obama and Ryan will map strategies for saving at least $1.2 trillion over the next decade that would eliminate the threat of across-the-board cuts scheduled to hit next January. But nobody is counting on either plan to be adopted.

House appropriators say they will use the president’s request as a starting point for agency spending bills. But Senate Majority Leader Harry M. Reid (D-Nev.), who is battling to maintain control of the Senate, announced earlier this month that he would not stage a vote on a full budget plan this year.

In addition to being messy, divisive and pocked with political land mines for vulnerable incumbents, a budget vote is unnecessary, Reid said, because legislation adopted during last summer’s showdown over the federal debt limit set spending levels for 2013 agency budgets.

“We do not need to bring a budget to the floor this year,” Reid told reporters. “We already did that.”

Republicans blasted Reid’s decision as irresponsible and politically driven, noting that a full-blown budget debate would require Senate Democrats to decide whether to accept or reject Obama’s tax increases and perhaps outline a vision for reining in spending on Social Security and Medicare, popular but expensive programs that are projected to drive future borrowing. Obama and congressional Democrats have said they would be willing to revamp the programs, but only if Republicans drop their objection to higher taxes on the rich.

Despite the ideological impasse, Senate Budget Committee Chairman Kent Conrad (D-N.D.) said he will take another stab at drafting a long-term plan that could tame the debt and garner bipartisan support.

“What are the odds? The odds aren’t good. But we have to try,” Conrad said, noting that many senators are eager for a “break-the-glass” blueprint that could be implemented quickly if a political consensus — or a new economic crisis — were suddenly to emerge.

“It’s absolutely imperative that we have plans on standby,” he said, “in case, God forbid, something were to happen.”

Lori Montgomery covers U.S. economic policy and the federal budget, focusing on efforts to tame the national debt.
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