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Key questions and answers about Obama’s new budget

(Andrew Harrer/Bloomberg News)

President Obama is scheduled to release his annual budget Monday morning, a big book that includes the details of where he thinks the federal government should raise money and where it should spend it. In the $4 trillion budget, the president will call for an increase in spending and a series of tax breaks designed to help middle-class families and poor workers. He suggests paying for all of this by raising taxes on the wealthy and large banks.

Republicans have been publicly dismissive of Obama's ideas, but there are several things in his proposal that some Republicans have suggested -- giving more money to the Pentagon, for example, and giving low-wage workers without children a larger tax break. (Republicans, however, think those initiatives should be paid for with other cuts in spending.) Congress has until Oct. 1 to decide how it wants to spend money in the next fiscal year. Without doubt, the GOP-controlled Congress will ignore most, if not all, of what Obama suggests.

And so like the State of the Union address and the turkey pardon, the president's annual budget is another one of Washington's many odd rituals. We'll answer a few questions you may be asking, and update later in the day after the budget is officially released:

  • What is the president's budget?
  • What's in his budget this year?
  • Wouldn't Obama's proposed spending boost the federal deficit and debt?
  • Where would the money come from?
  • What would the tax proposals mean for me?
  • How will Republicans respond?
  • What will happen next?

What is the president's budget?

Where the federal government gets the trillions of dollars it spends every year, and how it spends the money, is up to Congress to decide, with the president's consent. Yet Congress has required the president to submit a proposal every year. Because Congress often ignores this proposal for the most part -- especially, as now, when Congress and the White House are controlled by opposite parties -- you might wonder why lawmakers require it.

The president's budget is a kind of wish list, and as such, most presidents use it as a way to make a pitch to voters. Obama knows that Republicans will reject most of the ideas in his budget, but he wants Americans to understand what he and the Democratic Party stand for, and to make those priorities look as attractive as possible.

Obama's budget is "very much setting up the 2016 debate in a way that only someone with his bully pulpit can do," Jared Bernstein, who used to advise Vice President Biden on economics, told The Washington Post.

What's in his budget this year?

You can read the White House's outline, but here's the short version. The president would:

  • increase the Pentagon's budget by $38 billion;
  • expand and extend tax credits for parents paying for child care, college students paying tuition and low-wage childless workers;
  • help pay for preschool for 4-year-olds from poor and middle-income families;
  • begin a four-year program to improve roads, bridges and railways nationwide;
  • extend unemployment insurance;
  • devote $215 million to research what's known as "precision medicine," which involves using patients' genetic information to tailor medications specifically to their bodies;
  • set up a dedicated fund for fighting wildfires;

Those are just a few main points from what's certain to be a very long and complicated document, as the president's budget always is.

Wouldn't Obama's proposed spending boost the federal deficit and debt?

That was what Sen. Orrin Hatch (R-Utah) was asking. "He is the most liberal, fiscally irresponsible president we've had in history," the chairman of the Finance Committee told The Post. "I don’t know why he doesn't see it."

Liberal, possibly, but Obama would certainly object to being called fiscally irresponsible. According to the White House, the president's budget would not increase the deficit and would in fact begin to pay down the national debt. Several significant tax proposals would more than make up the difference, they say. Officials say the plan would yield a $474 billion deficit, or 2.5 percent of the gross domestic product, about where deficits have been over the past 50 years.

The federal deficit had increased sharply during the financial crisis, first because Americans were making less and paying less in taxes as a result, and because Congress passed a major economic stimulus bill to help the recovery. Since then, lawmakers and the president have agreed to major cuts in federal spending, taxes have gone up and the deficit has now declined, as this chart from the Congressional Budget Office shows.

While four years ago, the office was predicting that the national debt was in danger of ballooning rapidly, it now looks as though the debt will remain at manageable -- if increasing -- levels for some time, as shown in this handy chart from the staff of the left-leaning Center on Budget and Policy Priorities.

The White House expects that over the next decade, nearly $6 trillion will be added to the national debt under its budget. But because the economy would be growing, the nation's ability to pay it back won't get harder. Indeed, officials expect the debt to decline to represent 73.3 percent of gross domestic product in 10 years.

Where would the money come from?

Obama has long made limiting tax breaks that disproportionately benefit the top 2 percent of Americans a linchpin of his place to pay for domestic initiatives without exploding the deficit, and that's likely to remain a centerpiece of his new budget. Indeed, officials say this proposal would trim $1.8 trillion from the deficit through targeted spending cuts and tax increases. He also has previously proposed a variety of other specialized tax increases, such as one on tobacco to pay for early childhood education.

The new budget is expected to include several key proposals to raise taxes, including:

  • Raising the capital gains tax, paid by investors when they sell at a profit.
  • Imposing a new tax on inheritances.
  • While cutting the corporate tax rate to 28 percent from 35 percent, the proposal would limit corporate tax deductions, and also tax overseas profits held abroad at a special lower rate -- 14 percent -- if companies return them U.S. shores.
  • Levying a tax on large banks, designed to compensate for the advantage they gain in the market from being seen as "too big too fail."

How would those new taxes affect me?

That's a more difficult question to answer. The main effect of the tax proposals, taken together, would be to raise taxes on the wealthiest Americans and reduce them for the poor and some in the middle class.

Interestingly, while Obama has described his agenda as "middle-class economics," his tax proposals would do very little for the middle class overall, as shown in this chart from the Tax Policy Center.

These are averages, however, and the actual changes in any one household's tax bill would vary widely depending on their situation. Families with children would benefit from the credit for child care, for example. For others, the increase in the capital gains tax and the tax on banks could mean higher prices or lower wages.

How will Republicans respond?

House Ways and Means Committee Chairman Paul Ryan (R-Wis.) gave a hint of how the GOP will frame its rebuttal to the proposed tax increases on Sunday's "Meet the Press":

"I think it's a bad idea.  Because you're actually making it really hard for a family to pass on a family business to the next generation. So what I think the president is trying to do here is to, again, exploit envy economics. This top-down redistribution doesn't work. We've been doing it for six years. Look, it may make for good politics.  It doesn't make for good economic growth."

Watch the full interview on

What will happen next?

In Congress, Republicans will have to develop their own budget, and walk the perilous path between keeping the base happy and not presenting a proposal that would turn off voters in 2016.

At this point, the big question for Republicans is whether to look for some kind of compromise with the president on military spending. Many Republicans feel that the military's budget has been constrained, while others will oppose any increase in spending, but Obama and Democrats are unlikely to agree to a budget that raises spending for the military and no other federal programs.

It's quite possible that the end game is simply a stopgap measure that would postpone any new spending and tax decisions into 2016.