President Obama unveiled a $4 trillion budget Monday, featuring an ambitious public works program, a one-time tax on foreign profits kept overseas by corporations, tax credits for middle-class Americans, and a 1.3 percent pay raise for federal employees and troops.
The massive document is a blueprint for what Obama has been calling “middle-class economics,” but congressional Republicans are likely to view it merely as the president’s opening bid in a contentious process designed to forge a tax and spending plan for the new fiscal year.
The document will become, if not law, another defining moment for the president as he tries to carve out priorities for his remaining two years in office. Administration officials have tried to map out potential political trade-offs by offering elements such as a corporate tax revision that could appeal to Republicans, while asking for more spending on infrastructure.
But the president is also seeking to fund his proposals by raising taxes on the richest Americans, an approach that has immediately drawn Republican opposition.
House Ways and Means Committee Chairman Paul Ryan (R-Wis.), appearing on television Sunday, rejected many of Obama’s ideas for raising taxes on the wealthy as “envy economics.”
The president’s budget features a six-year, $478 billion public works program for upgrading the nation’s infrastructure, including roads, railroads and ports.
The package is bigger and stretched over more years than Obama’s earlier unsuccessful requests for infrastructure money.
The administration is proposing to pay for the ambitious program in part with revenue from a one-time mandatory 14 percent tax on about $2 trillion in profits that corporations have been keeping overseas in order to avoid corporate income taxes here. The tax would be a sizable hit on multinationals and a way of discouraging them from parking money in foreign countries.
The administration also is seeking to lower the corporate federal income-tax rate to 28 percent from 35 percent by closing loopholes.
And the president wants to raise pay for federal workers and troops by 1.3 percent, which would be more than the 1 percent pay bump given to them the past two fiscal years.
The administration is also seeking a 6 percent increase in research and development spending, a “substantial investment” in early education, boosts in efforts on cyber-security, and resources to fight the Islamic State and other foreign threats.
The Office of Management and Budget said the president’s plan would produce a $474 billion deficit, or 2.5 percent of the gross domestic product, which is little changed from the current fiscal year but in line with deficits as a share of the economy over the past half-century.
The budget requests exceed the spending caps established in 2010 by $74 billion spread evenly between military and non-military discretionary spending, and while the administration is proposing offsets, it also argued strongly for the elimination of the limits that trigger wide cuts known as sequestration. “We’ve seen bipartisan agreement that the sequestration is mindless and is not the right approach for our country,” said a senior administration official.
The OMB also forecasts that over the next decade, nearly $6 trillion will be added to the national debt, but that would represent a small decline as a share of the economy at 73.3 percent in 2025, said a congressional aide familiar with the plan who was not authorized to speak about it publicly. That forecast includes $1.8 trillion in deficit-reduction measures, said another person familiar with the plan.
The administration said it “achieves these goals by replacing mindless austerity with smart reforms, paying for all new investments” and seeking new savings.
That isn’t likely to appease Republicans, however, who are expected to quickly dismiss Obama’s budget request and start drafting their own blueprint that would seek to eliminate deficits entirely over the next 10 years and tackle the biggest drivers of government spending: Social Security and federal health programs.
Although the president has previewed his tax and spending priorities over the past two weeks, the budget provides important — and controversial — details.
“This is a budget that fleshes out the president’s State of the Union address and puts meat on the bones of his middle-class economics agenda,” said Rep. Chris Van Hollen (Md.), the ranking Democrat on the House Budget Committee. “It makes important strategic investmens to sharpen our competitive edge, including investments in infrastructure, science research and education — things that have helped power the American economy in the past — and we risk falling behind if we don’t make those investments going forward.”
Van Hollen added that the administration is proposing tax changes — including an increase in the capital gains tax and expanded tax credits for families with children — “designed to address what is currently a tilt in the tax code in favor of those who make money off of money and against those who make money off of hard work.”
According to a Tax Policy Center paper, if all of the major individual income tax provisions were fully phased in, the president’s package would raise taxes by an average of $164 per household in 2016. But winners would outnumber losers by more than 7 to 1, with the tax increases concentrated among the richest 1 percent of households.
The vast majority of households in the bottom four quintiles would pay lower taxes — or receive larger refunds — as a result of the policy proposals. Those in the lowest quintile would by far save the most.
“My job is to present the right ideas,” Obama told NBC News in a pre-Super Bowl interview broadcast from the White House. “If the Republicans think they’ve got a better idea, they should present them. But my job is not to trim my sails and not tell the American people what we should be doing, pretending somehow that we don’t need better roads or more affordable college.”
The president will also propose approximately $1.8 trillion in deficit-reducing measures over a 10-year period. Those measures, which resemble past proposals, would include about $160 billion in higher income and Social Security taxes resulting from immigration reform, $400 billion in health care savings. and $640 billion from taxes raised mostly by eliminating deductions without raising rates. Additional savings would come from lower interest costs on the federal debt.
One item that will still be in the printed version of the budget: a tax on withdrawals from 529 accounts designed to promote parents’ savings for college tuition. After that proposal was recently greeted with a backlash, the administration retreated from the idea, but it was too late to change the printed budget.
Obama administration officials have been trying to link various tax and spending changes to build support among members of Congress who might favor only one part of those pairings.
Treasury Secretary Jack Lew recently said that the windfall resulting from taxing foreign profits accumulated by corporations should go to funding the infrastructure program. The administration also paired increases in capital gains taxes and a new fee on the liabilities of big banks and insurance companies with proposals to expand middle-class tax credits and free community-college education. And the administration has also said that it wants to break through spending caps for discretionary spending by equal amounts for military and non-military programs.
But making those trade-offs will prove more difficult in Congress than on paper.
For example, the tax on foreign profits, regardless of whether they are brought back to the United States, is likely to face strong headwinds in Congress. Obama’s plan would impose an immediate tax of up to $280 billion on U.S.-based multinationals at a time when many lawmakers are worried about pushing companies to move their headquarters overseas.
The 14 percent tax would “transition” to a long-term 19 percent rate, senior administration officials said.
As previously announced, the budget will include an increase in the top capital gains tax rate to 28 percent, which would fall primarily on the richest 1 percent of Americans.
“What I think the president is trying to do here is to, again, exploit envy economics. This top-down redistribution doesn’t work,” Ryan said on NBC’s “Meet the Press.” “It may make for good politics; it doesn’t make for good economic growth.”
For example, Ryan called Obama’s plan to expand the amount of inherited wealth subject to the capital gains tax “a bad idea” that would make it “really hard for a family to pass on a family business to the next generation.”
Still, Ryan embraced some of Obama’s proposals for cutting taxes, especially for the struggling middle class. Ryan has long endorsed expanding the earned-income tax credit to childless adults, for example, saying it “pulls people into the workforce.”
“We really believe that we should reform the entire tax code for all people — individuals, families, businesses, simpler, the whole thing. But it is pretty clear to us that the president doesn’t agree with that on individuals,” Ryan said. “So the question is — which I don’t know the answer to — is there common ground on aspects of tax reform that we think can help grow the economy? . . . We’ll find out.”
Lori Montgomery and Juliet Eilperin contributed to this report.