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By Cheryl Bolen
President Obama April 10 presented his $3.78 trillion fiscal year 2014 budget as a fiscally responsible blueprint for middle-class jobs that would both shrink the nation's deficits and grow the economy.
“For years, the debate in this town has raged between reducing our deficits at all costs and making the investments necessary to grow our economy. And this budget answers that argument because we can do both,” the president said.
In remarks at the White House, Obama said his budget makes targeted investments in areas that will create jobs right now, as well as prime the economy to keep generating good jobs down the road.
Obama said his budget would replace the harmful sequester with smarter cuts and long-term reforms, cutting waste and unneeded programs. And the budget makes investments without adding a dime to the nation's deficits, he said.
On Capitol Hill, however, the president's budget landed with a familiar thud as House and Senate Republicans rejected it wholesale.
Not only did the budget arrive two months after the statutory deadline, but after both chambers had already passed their own budget resolutions (58 DTR G-4, 3/26/13).
“America cannot afford this budget, and America cannot afford the president's so-called compromise” said Sen. John Cornyn (R-Texas), before the budget document was even released.
Senate Republican Leader Mitch McConnell (R-Ky.) noted that the president's budget did not appear designed to bridge the differences between the House and Senate-passed budgets.
“I mean, if these reports we're seeing are correct, it's mostly the same old thing that we've seen year after year after year,” McConnell said.
House Budget Committee Chairman Paul Ryan (R-Wis.) observed that the president's budget offered no new ideas or proposals.
“The president's budget is such a disappointment because it's a missed opportunity. We need a new approach to meet our generation's most pressing challenges,” Ryan said.
The president said the nation's deficits were already falling.
Obama said his budget would reduce deficits by nearly another $2 trillion in a balanced and responsible way. To keep and preserve Medicare, for example, the government is going to have to make changes, but not drastic ones, he said.
“But if we're serious about deficit reduction, then these reforms have to go hand in hand with reforming our tax code,” Obama said.
The tax code must be made simpler and more fair, so that the biggest corporations and wealthiest individuals cannot keep taking advantage of loopholes and deductions that most Americans do not get, Obama said. “That's the bottom line,” he said.
“If anyone thinks I'll finish the job of deficit reduction on the backs of middle class families or though spending cuts alone, that actually hurt our economy short term, they should think again,” the president said.
Obama said this budget comes more than halfway towards meeting Republicans, and that in the coming days and weeks, he hopes the GOP proves they are as serious about deficits and debt as they claim to be.
The president's budget proposes to raise $580 billion in new revenues, in part by limiting tax deductions to 28 percent for top earners and by codifying what is known as the Buffett rule to ensure millionaires pay at least a 30 percent tax rate.
The president's budget was outlined by senior administration officials in a conference call with reporters April 9.
Overall, the budget incorporates the “last offer” that the president made to House Speaker John Boehner (R-Ohio) during negotiations over the fiscal cliff in December 2012, where the president first proposed the $580 billion revenue figure. That proposal was rejected by House Republicans, who balked at any increases in taxes.
The president's budget includes a 28 percent limit on all tax expenditures, which would generally apply to wealthier households earning more than $250,000 a year, an official said. It also includes a “legislated version” of the Buffett rule, similar to legislation proposed by Sen. Sheldon Whitehouse (D-R.I.), that excludes charitable contributions but nothing else, he said.
The Buffett rule was a principle for tax reform in last year's budget, but this year it is a formal proposal to ensure households earning more than $1 million annually pay at least a 30 percent tax rate, the official said. These two provisions raise $580 billion, he said.
In response, Boehner said the president got his tax hikes in January. “We don't need to be raising taxes on the American people. So I'm hopeful in the coming weeks we'll have an opportunity, through the budget process, to come to some agreement,” he said.
In addition, the president's budget includes a wide range of tax initiatives, many of which have appeared in the president's budgets before, the official said. These include tax credits for child care and tax cuts to encourage investments in infrastructure.
These will be paid for by additional tax savings, through provisions such as limiting the size of individual retirement accounts to $3 million and closing the carried-interest loophole, the official said.
In terms of corporate taxes, the president's budget would close all the same “unfair tax loopholes” that were in last year's budget, such as shifting profits to the Cayman Islands, and tax benefits for oil and gas companies and for corporate jets, the official said.
“The president has always said that he's willing to do business tax reform as part of a broader deficit reduction package that has balance--raises revenue up front to contribute to deficit reduction,” the official said.
“And as part of that, if you're doing something that was really serious, making America more competitive, lowering rates for companies creating jobs here in America, the business portion of that could be revenue neutral,” he said.
But if Republicans are unwilling to reach a grand bargain, the president will continue to push to close the unfair tax loopholes as he always has, the official said.
For the past few years, the deficit has been cut by more than $2.5 trillion, another official said. The president's budget builds on this by including $1.8 trillion in deficit reduction over 10 years, for $4.3 trillion total, he said.
“Importantly, this balanced deficit reduction replaces the sequester,” the official said. Spending is at the level of the cap in the Budget Control Act, or $1.06 trillion in 2014, consistent with the sequester being turned off, he said.
Senate Appropriations Committee Chairwoman Barbara Mikulski (D-Md.) said she supported the top-line funding level of $1.06 trillion, which is consistent with the bipartisan American Taxpayer Relief Act that passed in the Senate in January.
“We should stick to that deal and find a balanced solution to eliminate sequester. Sequester is a terrible policy that was never intended to happen,” Mikulski said.
If adopted, the budget would reduce the deficit to 2.8 percent of gross domestic product by 2016, and to 1.7 percent by 2023. In 2014, the deficit would be reduced to $744 billion, or 4.4 percent of GDP, the official said.
The president's budget would put federal debt as a share of the economy on a downward trajectory, while still making important investments that grow the economy, the official said.
Among other programs, the budget calls for tax credits for small business to expand their wages and hiring, an official said.
In terms of infrastructure, the budget calls for $50 billion in up-front investments that the president proposed in his State of the Union address, the official said. The budget also makes a sustained commitment to infrastructure through a six-year reauthorization of transportation programs, he said.
These programs are fully paid for with offsets not part of the last offer to Boehner, such as using overseas contingency funds and a tobacco tax, the official said. In addition, a range of mandatory initiatives are paid for by additional mandatory savings, he said.
The president's budget may stimulate some debate, and it should, said William Galston, senior fellow at the Brookings Institution's Governance Studies Program. It is a “revealing document,” he said.
The president's budget shows that the administration is prepared to put both defense and nondefense discretionary spending on a sharp downward course, Galston told BNA.
“According to the president's budget, over the next 10 years, the defense budget will shrink as a share of GDP by 40 percent,” Galston said. “And discretionary domestic spending will shrink as a share of GDP by one-third,” he said.
In examining how the budget achieves long-term deficit reduction by making such modest changes to the large, cost-driving parts of the budget, it is by squeezing discretionary spending mercilessly, he said.
In that respect, the president budget says a lot about what the nation's fiscal choices are, Galston said.
At this point, Congress may “cherry-pick” some of the ideas in the president's budget, but it certainly will not be the vehicle for budget reconciliation, Galston said.
What is significant, however, is the “squeeze” on discretionary spending and what it will mean for the nation's defense and public investments, Galston said. Both defense and nondefense spending in the president's budget is significantly below the previous low point, with records going back to 1962, he said.
“We're talking about a track in discretionary spending that would take us into waters we haven't charted for many, many decades. Is that what we want to do?” he asked rhetorically.
Sen. Jeff Sessions (R-Ala.), the ranking member of the Senate Budget Committee, chose to focus on the rate of increase in spending, rather than spending as a share of GDP.
“Every expert and specialist has told us that our current spending trajectory is dangerously unsustainable. We know this. Yet the long-delayed White House plan--once all the gimmicks are removed--surges spending even more,” Sessions said in a statement.
After four years of trillion-dollar deficits, the president's budget proposes a net spending increase of $1.025 trillion above projected growth, including a $154 billion spending increase next year and a $61 billion increase this year, Sessions said.
“This is not merely reckless; it is unthinkable. Once again, the president has submitted one of the most irresponsible spending plans in the history of our nation,” Sessions said.
Republican Study Committee Chairman Steve Scalise (R-La.) also criticized the president's budget for being late and for spending too much. “The federal government doesn't have a revenue problem; it has a spending problem,” he said.
Senate Budget Committee Chairman Patty Murray (D-Wash.) said that now that the president has weighed in with a proposal for a compromise path forward, “we need to do everything we can to work together toward a balanced and bipartisan budget deal that works for families and the economy.”
Murray said she was disappointed to see members of the Republican leadership seemingly reject any compromise before they even had a chance to read the details of the president's proposal.
“I hope that those Republicans are now prepared to tell us their ideas for a bipartisan path forward,” Murray said.
According to the White House, the budget proposes $230 billion in savings from using a chained measure of inflation for cost-of-living adjustments, with protections for the most vulnerable.
There will be protections for supplemental security income (SSI), low-income veterans, and older Social Security beneficiaries, who would get a bump in their benefits, an official said.
The budget calls for $400 billion in savings from health care programs, about $270 billion of which would come from Medicare, an official said. The cuts are “broadly similar” to last year's budget, he said.
The budget also has $200 billion in savings from other mandatory programs, such as reductions to farm subsidies and reforms to federal retirement benefits.
Finally, the budget proposes $200 billion in additional discretionary savings, with equal amounts from defense and nondefense programs, and another $210 billion in savings from reduced interest payments on the debt.
House Majority Leader Eric Cantor (R-Va.) suggested there might be provisions, beyond the tax increases, where the two sides might find agreement.
“If the president believes, as we do, that the programs like Medicare, Medicaid, Social Security are on the path to bankruptcy and that we actually can do some things to put them back on the right course and save them, to protect the beneficiaries of these programs, we ought to do so,” Cantor said.
However, where the president sees revenue increases and entitlement reforms as equal parts of a balanced compromise, Cantor suggested the president should not hold entitlement reforms “hostage” to more tax hikes.
By Cheryl Bolen
Details of the president's budget are available at http://www.whitehouse.gov/omb/budget.
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