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President Barack Obama yesterday (Monday) unveiled a $3.8 trillion budget proposal that includes big tax increases on individuals and businesses, and expands the federal deficit by more than $5.5 trillion by the end of the decade, including a record $1.6 trillion next year.
The budget blueprint for the fiscal year that begins Oct. 1 reflects the administration's struggle to find a balance between containing the spiraling federal deficit with the need to boost the economy and create jobs - both of which figure to be political bombshells in the upcoming 2010 elections.
"We're trying to accomplish a soft landing in terms of our fiscal trajectory," Peter Orszag, director of the White House Office of Management and Budget, said at a press briefing.
But the budget is certain to add fuel to the debate over the size and scope of government. As expected, Republicans railed against the administration's big spending programs and tax increases.
In an interview with Bloomberg News, U.S.Rep. Paul Ryan, R-WI, the senior Republican on the House Budget Committee, called the budget "a plan for more of the same - a very aggressive agenda of more government spending, more taxes, more deficits and more debt."
As part of a plan to start narrowing the gap between proposed budget outlays and tax receipts the President's proposal revolves around a cap on so-called discretionary spending, roughly 17% of the total budget.
Freezing spending on programs outside of defense and security for three years and then holding it at the rate of inflation for the rest of the next decade would save $250 billion, the administration said.
But the budget plan also calls for nearly $1 trillion in tax increases.
Allowing the Bush tax cuts to expire for taxpayers earning $250,000 or more would raise $678 billion. Banks like Bank of America Corp. (NYSE: BAC) and JPMorgan Chase & Co. (NYSE: JPM) along with multinational companies like General Electric Co (NYSE: GE) would face $90 billion in new fees and levies. And oil companies like Exxon Mobile Corp. (NYSE: XOM) would end up losing about $39 billion in tax breaks.
Individual and family taxpayers would see the top two income tax brackets rise from 33% and 35%, to 36% and 39.6%. Capital gains and dividend tax rates for earners making at least $250,000 would rise from 15% to 20%. All totaled, upper-income families would face $969 billion in higher taxes between 2011 and 2020.
But even with the proposed tax increases, the budget deficit will continue to plague the government and its citizens.
Under Obama's budget plan, the deficit would peak at $1.6 trillion this year or 10.6% of gross domestic product (GDP). It would then gradually shrink to $706 billion, or below 4% of GDP by 2014.
But then the President's budget calls for it to drift up again. The 10-year cumulative deficit from the fiscal year 2011 to 2020 would add a whopping $8.5 trillion to the federal deficit, according The Financial Times, pushing the debt as a percentage of GDP up to 77%.
That level of debt is setting off alarm bells in some academic quarters.
Kenneth Rogoff, a Harvard University economist familiar with other countries' experiences, says the deficit could push the U.S. over an edge where interest rates soar, the value of the dollar plummets and the economy could fall into another financial crisis.
"We will hit a point where it comes on us very quickly, and you don't want to edge up to that point," Rogoff told The Wall Street Journal. "Going beyond 80% you're taking a real chance."
To keep the deficit to below 77% of GDP, the president will be forced to make politically painful choices, including the large tax increases and cuts to some domestic programs.
Under Obama's plan, the budgets of the departments of agriculture, commerce, health and human services, housing and urban development, and justice would be cut.
The plan also calls for eliminating 120 programs and consolidating 38 education programs into 11including cutting the National Park Service's Save America's Treasures program, White House officials said.
The president is also expected to ask Congress to halt funding for the National Aeronautics and Space Administration's plan to return astronauts to the moon, which will face tough sledding in vote-rich Florida.
The plan calls for $100 billion in additional stimulus spending as part of a new jobs package, including $61 billion to extend for one year the administration's "Making Work Pay" tax credit which provided $400 to individuals and $800 to couples.
It contains $33 billion in "emergency" funding this year to help pay for the administration's troop buildup in Afghanistan. Next year, war costs will reach $159.3 billion.
The basic defense budget would increase to $549 billion, which amounts to a 1.8% increase adjusted for inflation. The Department of Homeland Security would get a 2% increase.
The budget has more than doubled from $1.9 trillion in 2001, according the Office of Management and Budget's data.
News & Related Story Links:
- Bloomberg:
Obama Offers $3.8 Trillion Budget With Focus on Jobs - Financial Times:
Obama unveils US budget plans - Wall Street Journal:
White House Proposes $3.8 Trillion Budget
What a sad world we live in where our own government can't balance it's books and still raises the taxes for the rich. What is the point of trying to better yourself in your career if all you face is taxes and death?
I am a small business owner who has been taxed heavily over the past years. I started the company in 1995 and I was thinking I was finally going to finally reap some rewards. Now I am just trying to stay in business. What many people do not understand is that the money a small business makes falls down to the owners personal taxes. It is not like we can pull all this profit out and keep for yourself – we invest in our company. Over the past few years I have had to pull about 40% of each years profit out to just pay my taxes. Then I get hit with AMT, my kids get zero student aid for college and I do not qualify for the stimulus. It is like getting stabbed with a knife over and over. If OWE-Bama ever even ran a corner gas station for a month he would maybe understand the hard work and effort it takes to run a small business. To come out and blame everything on the last decade and have this outrageous budget is sickening! I watched the State of the Union Address and was thinking that 200+ years ago we had people like Thomas Jefferson, George Washington, Benjamin Franklin, etc. Now we have Joe Biden, Nancy Pelosi, Barney Franks. What has happened to America??????
I encourage everyone reading this to send an email to your congressman an urge them to pass a $2.2 Trillion dollar budget this year. It's high time we started to live within our means.
You've conflated debt and deficit.
"pushing the debt as a percentage of GDP up to 77%" or
"To keep the deficit to below 77% of GDP"
Is it the debt or deficit that is 77% of GDP? Not very good for you cred.
"What has happened to America?" George W. Bush happened to America. Tax cuts + two unfunded, off-budget, and unprecedentedly expensive foreign wars + unfunded Medicare expansion (to buy votes in '04) + his boy Alan Greenspan's ideology-based belief that bankers would NEVER allow their own greed to overwhelm the system = the majority of our enormous debt.
You can argue all you want about the guy who only took office last year, in the middle of a fiscal catastrophe. You can talk about "never run a corner gas station" and forget about the spoiled-frat-boy president who started at the top of society and failed upward all the way to the White House because his name was Bush and his family is saturated in wealth and political power. Obama by contrast made it to the presidency from being a mixed-race latchkey kid living in an apartment with his divorced mom out in Hawaii–I think I know who demonstrated more character, intelligence, and drive. That's not even close! After we're dead and the Chinese historians are writing about the decline of the half-witted American Empire, the president (named Bush) who increased our borrowing from China by something like tenfold in the course of eight years is going to come in for a scathing review.
I'm sick and tired of Republicans hiding from the facts about what THEIR party did to this country, particularly the disasters they set up between 2000-2006 when they controlled the White House and both houses of congress. BTW, I'm a small-business owner too, and we've struggled through this fiasco as well, but I don't take the easy way out of avoiding real analysis and being another dittohead on the pile.
If we are not a socialist country by the time obama servers his first term, it will only be a miricale from GOD. we all should stop paying taxes until obama provides a valid birth certificate. If the gov can't set an example why should we? He is more racist than david duke and the klu klux clan. There is so much more, but i am so aggervated it p—- me off.
We need to vote out or impeach all in power now.
GOD BLESS AMERICA
Read "Shock Doctrine"
No progress will ever be made in Washington without meaningful campaign finance reform. Until then, we will face continued problems with our lawmakers enacting laws and regulations intended to benefit those who contribute the most. Case in point: the recent exclusion of unions from tax increases everyone else has to live with. Perhaps it's time for voters to seriously consider the independant parties as a viable alternative to business as usual on Capitol Hill.
It is appropriate to blame Bush for deficit spending in 2001 to 2006. But it is to the future we should direct our attention. President Obama is a spender on steroids. A 10% pay raise for mosrl government workers who already make 50% more that the private sector worker is not justified and only one example of budget foolishness.