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Obama budget calls for new spending to lower unemployment, help middle class

By Lori Montgomery and Michael A. Fletcher
Washington Post Staff Writer
Tuesday, February 2, 2010; A01

As President Obama announced his $3.8 trillion spending plan on Monday, Republicans savaged it as a recipe for fiscal disaster, while Democrats defended the call to drive record deficits even higher to finance measures aimed at putting people back to work.

The budget that Obama sent to Congress would devote an additional $282 billion to "temporary recovery measures" over the next three years, on top of the huge economic stimulus package congressional Democrats pushed through during his first days in office.

As a result, the gap between the government's revenue and spending would reach a record $1.56 trillion this year. Next year's deficit would approach $1.3 trillion, forcing the government to borrow 33 cents of every dollar it spends.

Obama would raise taxes on multinational corporations and high earners over the next decade and freeze non-security spending for three years, with much of the proceeds dedicated to reducing the budget imbalance. Nevertheless, deficits would remain elevated through 2020 and the national debt would grow -- potentially threatening the country's economic stability.

"Just three days after talking to House Republicans about the importance of fiscal responsibility, President Obama is submitting another budget that spends too much, taxes too much and borrows too much," said House Minority Leader John A. Boehner (R-Ohio). "Filled with more reckless spending and more unsustainable debt, the president's budget is just more of the same at a time when the American people are looking for Democrats in Washington to listen and change course."

Voters angry about the economy and rising government spending have battered Democratic candidates recently, and congressional elections loom this fall. White House press secretary Robert Gibbs said Monday that the administration's highest priority is battling a persistent 10 percent unemployment rate, in part because a more vibrant economy would increase tax revenue, reduce spending on jobless benefits and chart a quicker path out of the fiscal wilderness.

The White House expects the jobless rate to fall only slightly, to 9.8 percent, by the end of this year and to hover around 8 percent through 2012, when Obama will again stand before voters.

Speaking at the White House, the president blamed the bleak budget outlook on "a decade of profligacy" as Republicans running the federal government cut taxes while pursuing a war in Iraq. He said he could not reduce deficits any faster without jeopardizing the nation's emergence from the deepest recession since the Great Depression.

"I think it's very important to understand: We won't be able to bring down this deficit overnight, given that the recovery is still taking hold and families across the country still need help. We will continue, for example, to do what it takes to create jobs," Obama said.

The spending plan now moves to a sharply divided Congress, where Democrats are enthusiastic about another jobs bill but anxious about additional spending. On Monday, Democratic leaders offered muted support for the budget proposal.

"The Obama administration has realized from the start that it will be impossible to bring the deficit down unless the economy is up," said Rep. John M. Spratt Jr. (S.C.), chairman of the House Budget Committee. "The budget the president is sending Congress today puts a priority on those objectives."

Republicans, however, were brutal in their assessment, saying that the spending plan offers "the illusion of restraint," in the words of Rep. Paul D. Ryan (Wis.), the ranking Republican on the budget panel.

Obama has pledged to appoint a bipartisan task force to draft a plan to lower deficits over the next five years, but Republicans have turned down the president, saying the design of the commission would give Democrats the upper hand, stacking the deck for tax increases. Instead, they have called for a commission dedicated solely to cutting spending.

Some GOP lawmakers also have endorsed Ryan's alternative budget plan, which would wipe out deficits in part by privatizing Social Security and replacing traditional Medicare benefits with an insurance voucher for people age 55 and older. On Sunday, White House budget director Peter Orszag called that an "interesting" approach that "may not be the one the American public favors."

On Monday, Ryan fired back. "At least we're offering a plan," he said. "They're offering a commission."

Orszag declined on Monday to say when Obama would appoint commission members. He also would not discuss the scope of its mandate, including whether higher taxes for middle-class families would be on the table.

Obama won office on a pledge to protect families making less than $250,000 a year from tax increases, and his budget blueprint includes a variety of middle-class tax cuts, including a one-year extension of his signature Making Work Pay tax credit, worth $400 a year to individuals and $800 to families. Obama also proposes to extend tax cuts that benefit the middle class, enacted during George W. Bush's administration, past their scheduled expiration this year, at a cost of more than $2 trillion over the next decade.

Independent budget experts say it will be difficult to significantly reduce deficits without hitting the middle class.

Asked whether Obama had considered limiting those tax cuts, or at least offering a way to pay for them, Orszag said no.

"A lot of painful choices . . . have already been put on the table," he said, citing $1.2 trillion in proposed deficit reduction. "So is more necessary? Sure. But we think that, to get the rest of the way there and get the medium-term deficit down to where it needs to be, requires a bipartisan process, and that's what we're pursuing."

Some analysts said that Obama's proposals to cut deficits are unlikely to pass muster on Capitol Hill, leaving more work for the commission. For example, the president is proposing to raise taxes on multinational corporations by more than $120 billion over the next decade; a similar plan in last year's budget went nowhere in Congress.

Obama also wants to limit the value of itemized deductions for high earners to raise nearly $300 billion over the next decade, an idea lawmakers rejected last year to help finance far-reaching health-care legislation.

And while Obama's budget assumes that health-care legislation eventually will pass, reducing deficits over the next decade by about $150 billion, neither the White House nor congressional Democrats have outlined a plan to push the measure through a reluctant Congress.

Outside budget analysts called the blueprint a reasonable approach to the nation's fiscal problems. Robert Greenstein, executive director of the liberal Center on Budget and Policy Priorities, called it "a pretty solid budget, given the bounds of the possible."

"Obviously, it falls well short of what will be needed to get deficits under control," he said. "But the budget probably goes as far in that area as today's toxic political environment will allow."

Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, echoed that view, saying that any serious proposal to restrain deficits would require politically painful proposals, such as increasing the retirement age and limiting Social Security benefits for high earners. That kind of plan would be dead on arrival in an election year, she said. She warned, though, that Obama should be doing a better job now of preparing the public for the hard choices ahead.

"You can't brag in the State of the Union speech about tax cuts for 95 percent of the country, send out talking points about all the new spending and tax cuts in your budget and continue to promise not to raise taxes for families making less than $250,000 -- all while claiming you want to get deficits under control," she said.

Obama "has to stop pretending these small, little steps are the kinds of tough choices we should be focusing on right now, instead of the bigger policies," she said.

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