Obama sends massive budget to Congress

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(Agencies)
Updated: 2009-02-26 19:45

WASHINGTON -- US President Barack Obama is sending Congress a $3 trillion-plus budget, a spending blueprint that will project astronomical deficits that reflect the cost of getting the country out of a deep recession and a severe financial crisis.

US President Barack Obama (C) nominates former Washington Governor Gary Locke (L) to become commerce secretary as Vice President Joe Biden looks on, in Washington February 25, 2009. [Agencies]

Obama's budget is a 140-page outline, with the complete details scheduled to come in mid- to late-April, when the new administration sends up the massive budget books that will flesh out its spending plan.

However, the submission of the bare budget outline was certain to set off fierce debate in Congress over Obama's spending and tax priorities. The document includes additional requests for the current year and proposals for the 2010 budget year, which begins Oct. 1.

The president wants Congress to extend the $400 annual tax cut due to start showing up in workers' paychecks in April, and it seeks an extension of the tax cuts passed in 2001 and 2003 for couples earning less than $250,000 per year. Those tax cuts were due to expire at the end of 2010.

To pay for the middle-class tax relief and the effort to increase health coverage, Obama's budget makes significant cuts on the rate of growth in other areas of health care and seeks to trim a variety of other government programs, including subsidies earned by farmers with revenue of more than $500,000 per year.

Even with all the savings, the cost of the $787 billion economic stimulus bill will push the deficit for this year to more than $1.5 trillion. The deficit is expected to remain around $1 trillion for the next two years before starting to decline to $533 billion in 2013, according to budget projections.

Obama's budget proposal proposes achieving $634 billion in savings on projected health care spending and diverting those resources to expanding coverage of uninsured Americans. The $634 billion represents a little more than half the money that would be needed to extend health insurance to all of the 48 million Americans now uninsured.

Americans now spend a total of $2.4 trillion a year on health care.

Obama also will ask for an additional $75 billion to cover the costs of wars in Iraq and Afghanistan through September, the end of the current budget year.

Obama's budget proposal would effectively raise income taxes and curb tax deductions on couples making more than $250,000 a year, beginning in 2011. By not extending former President George W. Bush's tax cuts for wealthier filers, Obama would allow the marginal rate on household incomes above $250,000 to rise from 35 percent to 39.6 percent.

The plan also contains a contentious proposal to raise hundreds of billions of dollars by auctioning off permits to exceed carbon emissions caps, which Obama wants to impose on users of fossil fuels to address global warming.

Some of the revenues from the pollution permits would be used to extend the "Making Work Pay" tax credit of $400 for individuals and $800 for couples, as provided in the just-passed economic stimulus bill.

About half of what officials characterized as a $634 billion "down payment" toward health care coverage for every American would come from cuts in Medicare. That is sure to incite battles with doctors, hospitals, health insurance companies and drug manufacturers.

Some of the Medicare savings would come from scaling back payments to private insurance plans that serve older Americans, which many analysts believe to be inflated. Other proposals include charging upper-income beneficiaries a higher premium for Medicare's prescription drug coverage.

To raise the other half, Obama wants to reduce the rate by which wealthier people can cut their taxes through deductions for mortgage interest, charitable contributions, local taxes and other expenses to 28 cents on the dollar, rather than the 35 cents they can claim now. Even more money would be raised if the top rate reverts to 39.6 percent, as Obama wants.

Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, called Obama's proposal to tax the wealthy to finance health care reform a starting point. But he wants to also examine taxing some of health insurance benefits provided by employers, an idea rejected by Obama in last year's presidential campaign.

Budget documents provided to The Associated Press show that Obama will not lay out a detailed blueprint for a health care overhaul, but a set of broad policy principles and some specific ideas for how to raise a big chunk of the money.

Obama's promise to phase out direct payments to farming operations with revenues above $500,000 a year is sure to cause concerns among rural Democrats.

Even after all those difficult choices, cutting about $2 trillion from the budget over 10 years, Obama's budget still would feature huge deficits.

At $533 billion, the deficit in 2013 will be about 3 percent of the size of the economy, a level that administration officials said would be manageable.