President Obama’s $4 trillion budget request, packed with familiar proposals for new spending and higher taxes, landed Monday on the doorstep of a Republican Congress eager to end an era of political gridlock — giving Obama unexpected leverage in coming negotiations.
With the economy on the mend and federal deficits falling, Obama on Monday urged lawmakers to move beyond the “mindless austerity” of the past four years. His budget request seeks fresh investments in education and infrastructure, as well as new tax breaks for a struggling middle class. It also would blow through budget caps set for the Pentagon and domestic agencies, urging an increase of $74 billion next year, or about 7 percent.
Those proposals echo the priorities of many Republican lawmakers, who are torn between their pledge to shrink the size of government and their desire to demonstrate an ability to govern. They, too, want to increase defense spending and replenish a trust fund for highways and other infrastructure scheduled to run dry in May.
That deadline could force both sides to the negotiating table. Meanwhile, Republican leaders newly in control of both chambers have vowed to avoid another politically damaging government shutdown — which means finding common ground with Obama on agency appropriations before the new fiscal year begins Oct. 1.
Despite the pressure to forge consensus, there were few signs of it Monday. Republicans hope to rally lawmakers in both chambers around their own budget blueprint by mid-April. And for now, GOP leaders say they will honor the budget caps adopted during the debt-limit fight of 2011.
Obama warned that he will veto spending bills that do not do away with the sharp automatic budget cuts, known as “sequestration,” also adopted as part of that deal.
“I am not going to accept a budget that locks in sequestration going forward,” Obama said in an appearance at the Department of Homeland Security’s National Operations Center. “I want to work with Congress to replace mindless austerity with smart investments that strengthen America. And we can do so in a way that is fiscally responsible.”
Obama also chastised Congress for withholding funds from the Department of Homeland Security. Republicans, angry with the president over an executive action that would let as many as 5 million undocumented immigrants stay in the country, have so far funded the agency only through the end of this month.
“Don’t jeopardize our national security over this disagreement,” Obama said.
Republicans, in turn, blasted Obama’s latest budget request as a retread of proposals that went nowhere even before Democrats lost control of the Senate. With nearly $2 trillion in higher taxes over the next decade — including an increase in the estate tax and new limits on tax breaks for the nation’s wealthiest households — the latest White House blueprint reflects “the same tired agenda that has failed to deliver for American families,” the chairmen of the House and Senate budget panels said in a joint statement.
“The president is advocating more spending, more taxes and more debt. As we have seen over the past several years, that approach will yield less opportunity for the middle class and a crushing burden of debt that threatens both our future prosperity and our national security,” said the statement from Rep. Tom Price (R-Ga.) and Sen. Mike Enzi (R-Wyo.).
“The President is asking for billions in additional spending without any realistic way of paying for it,” House Appropriations Committee Chairman Harold Rogers (R-Ky.) added in his own statement. “The White House knows that its proposed tax increases and other budget gimmicks will never be enacted into law.”
Under the proposal, the deficit would fall from $583 billion this year to $474 billion in fiscal 2016, stabilizing at about 2.5 percent of the overall economy throughout the coming decade.
The national debt would continue to grow, with the portion held by outside investors rising from $13.5 trillion this year to $20.3 trillion in 2025. But the debt would shrink slightly as a share of the economy, falling from 75 percent of gross domestic product this year to 73.3 percent in 2025.
After a painful climb out of a recession that spawned four straight years of trillion-dollar deficits, administration officials declared the budget to be at last on a “sustainable” course.
“The key test of fiscal sustainability is whether debt is stable or declining as a share of the economy, resulting in interest payments that consume a stable or falling share of the Nation’s resources over time,” the budget document says, adding that the president’s proposal “meets that test.”
To achieve that goal, Obama proposes to raise taxes and bank new revenue from immigration reform rather than cutting spending. And while Republicans are calling for a renewed effort to tackle the rising cost of entitlement programs, including Social Security, Obama’s budget backs away from his previous offer to slow Social Security spending by adopting a less-generous measure of inflation for cost-of-living increases, known as the chained consumer price index.
Obama does propose to cut spending on federal health programs by roughly $400 billion over the next decade. But the bulk of those savings would come from reducing payments to providers, particularly pharmaceutical companies, rather than cutting benefits, as Republicans prefer.
Obama’s most significant proposal for slowing the rising cost of benefits would raise Medicare premiums for wealthier retirees. Meanwhile, he proposes to cut payments to providers of post-acute care, saving $102 billion over 10 years, at a time when a growing portion of the nation’s population is elderly.
The president also would cut payments to pharmaceutical companies under Medicare Part D, bringing the payments in line with those paid by Medicaid and saving $116 billion over 10 years. The administration says that it is “deeply concerned with the rapidly growing prices of specialty and brand name drugs.”
All told, Obama’s policies would add about $5.7 trillion to the debt over the next decade (compared with nearly $8 trillion under current law). Meanwhile, interest payments on the debt would climb to nearly $800 billion a year by 2025 — more than Obama proposes to spend on any program in that year other than Social Security and Medicare.
Republicans, for their part, have pledged to wipe out deficits entirely by 2025, in part by crafting far-reaching proposals to rein in federal health and retirement spending. Price has declared his intention to directly tackle Social Security spending, an area his predecessor, Rep. Paul Ryan (R-Wis.), studiously avoided in his budgets over the past four years. Without congressional action, Social Security will run short of money to cover disability payments sometime next year.
Meanwhile, Ryan, who has moved on to head the tax-writing House Ways and Means Committee, has vowed to advance his own proposals for reducing spending on health care, including subsidies under Obama’s Affordable Care Act. Ryan said he also intends to unveil a comprehensive plan for overhauling federal tax laws once he has exhausted efforts at compromise with the administration.
“I want to work with this administration, and I hope that we can find common ground. But the President has to demonstrate that he’s interested in governing, not just posturing,” Ryan said in a statement. “. . . I hope the president is willing to rethink his tax-and-spend approach so we can get things done for the American people.”
On the tax front, Obama’s budget request offers little in the way of compromise. His proposals are largely torn from the pages of old playbooks and face a wall of opposition from business groups and wealthy Americans, as well as lawmakers in both parties.
His plan for business tax reform — the ripest area for compromise with Republicans — would lower the corporate tax rate to 28 percent from 35 percent by closing loopholes for targeted constituencies. For example, Obama wants to eliminate tax breaks for the oil and gas industry totaling $45.5 billion over the next decade, as well as $4.3 billion in preferential tax benefits for the coal industry, which has a close ally in Senate Majority Leader Mitch McConnell (R-Ky.).
He also calls for a new 19 percent tax on profits earned overseas, a proposal estimated to bring in $206 billion over the next decade, and an immediate, one-time levy of 14 percent on past corporate earnings stashed abroad to avoid U.S. taxation.
Other money-raisers would include a new 0.07 percent fee on the liabilities of banks and insurance companies with more than $50 billion in assets, about 100 institutions, and a new tax on inherited estates that would affect a very small number of the nation’s wealthiest people but is staunchly opposed by Republicans as a “death tax.”
Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) dismissed the package as “a retread of the same top-down redistributive policies that have failed” in the past, saying the president’s budget “shamelessly panders to the Democratic base.”
White House press secretary Josh Earnest retorted: “Just because some proposals didn’t pass the first time doesn’t mean they aren’t good ideas.”
“There are a pretty substantial number of things included in this budget that have been supported by Republicans,” he said. “There should be some reasonable common ground that we can find.”
Greg Jaffe contributed to this report.