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Obama's $3.8 trillion budget calls for jobs assistance, tax changes

By Lori Montgomery
Washington Post Staff Writer
Monday, February 1, 2010; A01

The $3.8 trillion budget blueprint President Obama plans to submit to Congress on Monday calls for billions of dollars in new spending to combat persistently high unemployment and bolster a battered middle class. But it also would slash funding for hundreds of programs and raise taxes on banks and the wealthy to help rein in soaring budget deficits.

To put people back to work, Obama proposes to spend about $100 billion immediately on a jobs bill that would include tax cuts for small businesses, social-safety-net programs, and aid to state and local governments. To reduce deficits, he would impose new fees on some of the nation's largest banks and permit a range of tax cuts to expire for families earning more than $250,000 a year, in addition to freezing non-security spending for three years.

Despite those efforts, the White House expects the annual gap between spending and revenue to approach a record $1.6 trillion this year as the government continues to dig out from the worst recession in more than a generation, according to budget documents released Sunday by the White House. The red ink would recede to $1.3 trillion in 2011 but remain persistently high for years to come under Obama's policies.

For a more comprehensive deficit-reduction plan, Obama will rely on a bipartisan task force of lawmakers and budget experts, who will be asked to draft a package of tax hikes and spending cuts to slash deficits and stabilize government borrowing by 2015, administration officials said.

The budget blueprint, the second of Obama's presidency, comes as Republicans emboldened by recent election victories are fanning public outrage over government spending, and nervous Democrats are clamoring for more money to reduce a 10 percent unemployment rate. As both parties gear up for the November election, Obama's spending plan is designed to steer a middle course between those opposing goals and to reassure angry voters.

"This is a budget that makes tough choices while investing in initiatives to create jobs and help reduce the economic pressures facing the middle class," White House spokesman Dan Pfeiffer said in a briefing for reporters.

In addition to new spending on the economy, the plan calls for $250 million to be set aside for the purchase of an Illinois prison that had been identified as a possible home for detainees from Guantanamo Bay, White House budget director Peter R. Orszag said. But that doesn't mean the prison would be used for that purpose, Orszag said, noting that the federal prison system needs new maximum-security beds.

The budget also calls for an additional $33 billion in war funding this year and a total budget of $160 billion for the wars in Iraq and Afghanistan next year.

The 2011 blueprint repeats many of Obama's grandest ambitions from his first budget, including an expensive overhaul of the nation's health-care system, an expansion of the federal student loan program that would make Pell grants an entitlement, and far-reaching climate-change legislation. But with Obama's standing in the polls badly damaged by a bruising year-long battle over health care, all three of those initiatives are stalled in Congress with no clear path forward.

The budget is also expected to revive a series of tax increases from last year, as well, including a cap on the value of itemized deductions for families earning more than $250,000 a year and higher income taxes for hedge-fund managers. But those ideas, too, have gone nowhere in Congress and may be even less appealing in an election year.

The lack of cash, meanwhile, has constrained Obama's ability to roll out new initiatives to reframe his presidency. In recent days, for example, the administration has touted a $3 billion increase for education programs, a $5 billion campaign to combat nuclear proliferation and a $4 billion "infrastructure innovation and finance fund" -- sums that pale in comparison to Obama's original $600 billion-plus health-care plan.

Even the administration's marquee package of aid for the middle class is likely to be policymaking on a shoestring, outside analysts said. Policy experts who helped design Obama's proposed tax break for elder care, for example, said the proposal would cost only a few billion dollars over the next decade.

The White House has grander aspirations for the jobs bill, which Obama asked Congress to put "on my desk without delay" during last week's State of the Union address. Appearing on CNN's "State of the Union," White House press secretary Robert Gibbs urged Republicans to set aside their differences with Democrats and coalesce around the legislation.

"I think that would be a powerful signal to send to the American people," Gibbs said.

But Republicans are more likely to highlight the fact that a jobs bill would drive this year's budget deficit even higher than the record $1.4 trillion recorded in 2009, according to White House projections. On Sunday, Senate Minority Leader Mitch McConnell (R-Ky.) called on Democrats instead to focus solely on cutting taxes, including extending tax cuts for the wealthy enacted during the Bush administration, and abandon the health-care bill.

"If you're in business now and you're trying to figure out what the future is, you're looking at health-care taxes, you're looking at capital gains taxes going up, dividend taxes going up," McConnell said on CNN. "So, is that a great environment in which to expand employment? I think the answer is no."

Republicans have also resisted calls to help Democrats dig the nation out of a budget hole that is driving accumulated debt to dangerous levels that could damage the dollar and undermine the United States' international standing. On Sunday, Orszag said Obama could be blamed for only a small part of that problem, which he said has been driven primarily by GOP refusal to pay for tax cuts and an expensive Medicare prescription drug benefit, as well as automatic spending to stabilize the economy that occurred "even before we took office."

To stabilize the debt, many economists say, the government should run annual deficits of no more than 3 percent of the overall economy, a target the White House has told key lawmakers it hopes to hit by 2015. But under Obama's new budget blueprint, deficits would sink no lower than 3.9 percent of the economy and begin to rise again by 2020.

Getting to Obama's target will not be easy and is likely to require trillions of dollars in tax hikes, as well as cuts to popular entitlement programs such as Social Security and Medicare. Last week, the Senate rejected a plan to create a deficit-reduction task force by law after seven Republicans switched positions and voted against it. Obama has vowed to create the task force by executive order, though officials declined Sunday to say when that would happen.

Sen. George V. Voinovich (R-Ohio) said he would encourage his colleagues to drop their opposition to the panel, calling GOP claims that it would be stacked in favor of tax increases "disingenuous."

"We had a chance to do something that would have been constructive. We could have made that happen . . . and we blew it," Voinovich said, adding that the president's panel is now the best option. "If it's a legitimate effort of people who are respected, then I think we have an obligation to participate."

Pfeiffer added: "This is only going to be solved in a bipartisan way . . . and we hope they [Republicans] will accept that responsibility."

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