As Obama unveils budget, deficit hits postwar record

McClatchy NewspapersFebruary 26, 2009 

WASHINGTON — President Barack Obama unveiled his first federal budget proposal Thursday, a $3.55 trillion plan for 2010 that would start to alter the course of American government dramatically.

He sought to put his imprint on the coming decade with an agenda that's sharply different from the past eight years under Republican President George W. Bush, including universal health care, broad tax cuts and a helping hand for the working and middle classes, greater regulation of business and an aggressive plan to limit emissions that cause global warming.

In another dramatic reversal, Obama proposed a massive transfer of the nation's tax burden, saying that wealthier taxpayers and businesses that benefited unfairly in recent years should pay more to help those who are losing ground at the bottom of the economic ladder. He'd raise taxes on the wealthy — those with family incomes of more than $250,000 — by $955 billion over 10 years, and cut taxes for other families by $770 billion.

Obama also signaled a shift in the way that the United States projects power, calling for expanding the Foreign Service, which sends diplomats around the globe, and doubling foreign aid to other countries. His spending plan anticipates the war in Iraq winding down, even as he sends more troops to Afghanistan.

"The time has come to usher in a new era," the president said in the budget proposal.

"I don't think that we can continue on our current course," he added at the White House. "I'm determined to bring the change that the people voted for last November. And that means cutting what we don't need to pay for what we do."

Only weeks into his presidency, Obama offered just broad outlines of what he wants in a 134-page overview. His detailed proposals for the fiscal year that starts Oct. 1, and nine years beyond, will be released in April.

Still, the overview offered enough detail to fill in the broad brushstrokes that the president has used in recent weeks to talk about what he wants to do. It elated many Democrats in Congress, alarmed Republicans and had analysts agreeing that the Obama era has begun.

"What an exciting day it is for us," said House Speaker Nancy Pelosi, D-Calif.

"The era of big government is back, and Democrats are asking you to pay for it," countered House Minority Leader John Boehner, R-Ohio.

The era of big government never went away; spending and debt grew under Republican rule from 2001 to 2007. There was little doubt, however, that the role of that government is poised to change.

"This budget signals some big changes," said Stan Collender, a veteran Washington budget analyst.

"You have a government that is getting involved in everything from car dealers to dry cleaners. All that implies a substantive change in government activity. Then you've got an outline for health care, which by itself would be a substantial change in government's role. . . . What we don't know is how permanent these changes will be, particularly given his deficit reduction plans a year or two from now."

Obama said Thursday that the deficit for the current fiscal year — which started last Oct. 1, before he took office — would reach $1.75 trillion. That would equal 12.3 percent of the economy, the largest deficit since the government shortfall reached 21.5 percent of the gross domestic product in 1945, the final year of World War II.

He stressed that some of that huge deficit stems from the recession and efforts to end it, including $700 billion allocated last fall to shore up banks. He said he might need another $250 billion to rescue banks, but didn't request it in the budget preview.

Anticipating a growing economy in the 2010 fiscal year, Obama said he'd start lowering the deficit next year. It still would represent 8 percent of GDP, however, larger than the 6 percent deficit that President Ronald Reagan recorded in 1983, until now the largest of the post-World War II era. It would come down only to $533 billion in fiscal 2013, then start rising again.

Even as he stressed anew that he'll cut some spending to rein in the deficits, Obama said that he and the nation can't afford to wait to reshape the government.

He proposed spending $634 billion over the next 10 years as a "down payment" toward overhauling health care, including expanding insurance coverage to the 46 million Americans who don't have any.

The president didn't spell out the details of how he'd expand health care, preferring to work that out with Congress as well as interest groups, starting with a White House meeting next week.

Aides acknowledged that it will cost more than $634 billion, but said that Obama wanted to start identifying where the money would come from.

He'd finance that by raising taxes on upper-income Americans — effectively those who earn more than $250,000 a year — and cutting government payments to some health-care providers, such as private companies that administer Medicare Advantage plans, as well as drug manufacturers.

The tax increases to finance health care would come by further limiting deductions for upper-income taxpayers, a plan that he said would raise $318 billion over 10 years.

They're not the only tax changes in the budget outlook.

Obama also said he'd raise taxes on the same taxpayers by letting the Bush reductions in the top marginal-tax rates expire as scheduled at the end of 2010. That would raise $339 billion over nine years.

On the other side of the tax ledger, he proposed making permanent the temporary $400 per person and $800 per family tax credit that's in the recent stimulus package. Extending that tax credit, which is meant to offset the Social Security and Medicare payroll taxes, would cost $537 billion over nine years.

Throughout his plan, Obama and his aides said they'd use the tax code to help reverse a long trend of the rich getting richer and the poor getting poorer.

"For the better part of three decades, a disproportionate share of the nation's wealth has been accumulated by the very wealthy," his budget said.

"The past eight years have discredited once and for all the philosophy of trickle-down economics, that tax breaks, income gains and wealth creation among the wealthy eventually will work their way down to the middle class. In its place, we need economic opportunity to trickle up."

Obama also proposed using what's often called a "carbon tax," not only to regulate emissions of carbon dioxide but also to finance tax cuts for those who earn less than $140,000.

He said "climate revenue" would total $646 billion over eight years, starting in fiscal 2012. Of that, $120 billion would go to developing clean energy technology and $526 billion would go to tax cuts and credits.

The ultimate benefit to taxpayers wasn't clear, however. Boehner and other Republicans said that businesses that emit carbon dioxide would raise their prices to recover the taxes or fees paid to the government. They said that would wipe out the benefit of the tax reduction.

"You're not giving 95 percent of the people a tax cut under this plan," Boehner said. "You're raising energy prices."

Obama said he'd increase the size of the Foreign Service significantly and double foreign aid over time to $50 billion a year. He also proposed increasing health care and benefits for veterans. He'd raise pay next year for the uniformed military by 2.9 percent and for the rest of the federal work force by 2 percent.

One more growth area: regulating business. Obama proposed a 13 percent increase in the Securities and Exchange Commission's budget and a 44 percent increase for the Commodity Futures Trading Commission.

(Kevin G. Hall contributed to this story.)

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