President Obama unveiled an ambitious $3.9 trillion budget blueprint Tuesday that seeks billions of dollars in fresh spending to boost economic growth but also pledges to tame the national debt by raising taxes on the wealthy, slashing payments to health providers and overhauling the nation's immigration laws.
His blueprint includes some targeted spending cuts, but relies primarily on more than $1 trillion in new taxes to slow borrowing over the next decade – with much of the burden falling on major businesses and the wealthy. While some of the proceeds would go toward deficit reduction, Obama also calls for more than $55 billion in new spending on defense, roads and bridges, universal preschool education and expanded tax credits for the poor.
Interactive: An agency breakdown of Obama's budget »
To achieve Obama's agenda, however, Congress would have to approve his ideas -- an unlikely prospect in an election year. While the budget opens the door to a few potential areas of bipartisan agreement – including an overhaul of business taxes that would generate cash for infrastructure – it retreats from other compromises.
For example, Obama does not propose using a less-generous measure of inflation to calculate Social Security benefits, a move that would significantly slow spending growth in the program. Obama included the proposal, known as the chained consumer price index, in last year's budget in a failed bid to strike a grand bargain on the debt with Republicans.
“Our budget is about choices, it’s about our values,” Obama said during an appearance at Powell Elementary School in the District. “As a country we’ve got to make a decision if we’re going to protect tax breaks for the wealthiest Americans or if we’re going to make smart investments necessary to create jobs and grow our economy, and expand opportunity for every American.”
Republicans quickly rejected the president's choices, however, complaining that his request would bust the caps on agency budgets that he and congressional Democrats had agreed to set in a compromise enacted barely three months ago.
House Speaker John A. Boehner (R-Ohio) derided the request as “a clear sign this president has given up on any efforts to address our serious fiscal challenges that are undermining the future of our kids and grandkids.”
“After years of fiscal and economic mismanagement, the president has offered perhaps his most irresponsible budget yet," Boehner said in a statement. “Despite signing last year’s bipartisan budget deal – and touting it as an accomplishment – the president now proposes violating that agreement with a spending surge. What’s more, he proposes raising even more taxes – not to reduce the deficit but to spend more taxpayer money.”
Added House Budget Committee Chairman Paul Ryan (R-Wis.): “This budget isn’t a serious document; it’s a campaign brochure."
In his message to Congress, Obama argues that his policies have the deficit well in hand -- and would improve the nation's fiscal outlook in the years to come. His request proposes to reduce borrowing by an additional $1.4 trillion by 2024, building on $4 trillion in deficit-reduction enacted by Congress since the budget wars began three years ago.
As a result, the White House projects a deficit of $564 billion in 2015, or 3.1 percent of the economy, down from $649 billion this year and 3.1 percent of GDP. By 2024, Obama projects a deficit of just $434 billion, or 1.6 percent of the overall economy, the smallest deficit since 2007, before the Great Recession dealt a terrible blow to government finances.
A shrinking deficit would reduce borrowing, thereby allowing the overall debt to grow more slowly. The White House estimates that the debt would shrink to 69 percent of the economy by 2024, compared to 74.4 percent today.
Those projections are far rosier than those made recently by the non-partisan Congressional Budget Office. Under current law, the CBO forecasts that the deficit will rise to 74 percent of GDP in 2024 and that the debt will grow to 79 percent of GDP.
The Obama budget would build on a spending deal reached late last year between Rep. Paul Ryan (R-Wis.) and Sen. Patty Murray (D-Wash.), the chairs of their respective chamber's budget committees. Under the deal, which largely replaces the deep domestic and defense cuts known as sequestration for two years, agency spending levels are set through September 2015.
In his budget, Obama argues that the deal provides insufficient spending; he proposes $56 billion in additional funding to agencies, offset by $28 billion in alternative spending cuts and tax hikes.
The new spending, known as an Opportunity, Growth and Security Initiative, will pump money into preschool programs, the National Institutes of Health, manufacturing institutes, climate research, job training and a new parental leave proposal, among other benefits for the middle class. Obama would also expand a tax credit for poor, working-class Americans valued at $60 billion over 10 years.
To pay for those initiatives, the president takes aim at a variety of tax breaks that benefit the wealthy – limiting the value of retirement savings accounts, a loophole known as "carried interest" that allows many private equity and hedge fund managers to reduce their tax burden, among others.
Reprising one tax proposal from last year that also hits middle class and lower income Americans, Obama proposes a new tax on tobacco to pay for the early-childhood initiative.
After 2015, Obama proposes to replace the remainder of sequestration with a combination of tax hikes as well as cuts in other mandatory spending programs, such as Medicare. Obama would seek, for example, to raise premiums for wealthy seniors and force drug companies to offer larger discounts on prescription drugs.
Like the CBO, the Obama administration does not paint an overly optimistic picture of economic growth over the next decade, with an average inflation-adjusted growth rate of just 2.6 percent per year over the next 10 years.
Rather, the president sees a rosier budget picture due primarily to his proposal to increase tax revenue. In 2024, Obama projects collecting about $500 billion more in taxes than would be the case under current law.
Reach Zachary Goldfarb on Twitter at @Goldfarb.
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