Obama budget a mix of spending, saving

WASHINGTON – President Barack Obama called for higher taxes on the wealthiest Americans in his proposed new federal budget released Wednesday, but he also offered for the first time changes aimed at stemming the burgeoning costs of Medicare and Social Security.

His budget would increase spending by $93 billion in the fiscal year starting Oct. 1, reaching a total of $3.78 trillion, while the deficit would drop from this year’s $973 billion to $744 billion.

Long term, he proposed twin moves to start grappling with the nation’s sky-high deficits. He urged new tax increases. And he proposed slowing the growth of Social Security benefits. His plan would cut projected deficits over the coming decade. Yet it would continue to borrow and would add another $8.1 trillion to the debt, a 47 percent increase. And he proposed new taxes and fees, including a nearly $1 hike on a pack of cigarettes, for a flurry of new programs to boost the sluggish economy.

Obama sought to project his budget as one that would allow lawmakers to look beyond the fiscal squabbles that have defined Washington, saying it shows it’s possible to both boost the economy and trim the deficit.

“If we want to keep rebuilding our economy on a stronger, more stable foundation, then we’ve got to get smarter about our priorities as a nation,” he said.

Those words were seemingly directed at allies as much as critics. Senate Republicans didn’t wait for him to finish speaking before labeling the budget a “dud.” And some Democratic lawmakers accused Obama of looking to sacrifice the core Democratic achievements of Medicare and Social Security.

“What’s different is that he seems to be offering entitlement changes that look like an olive branch to the Republicans and, as a result, he’s alienated everyone,” said Roberton Williams of the centrist Tax Policy Center. “He’s doing the right thing. I just don’t think in today’s environment it’s going anywhere.”

Obama cast his 2014 proposal as a “fiscally responsible blueprint for middle-class jobs and growth,” mixing increases in spending on manufacturing, research and construction with tax hikes for the rich and a slowdown in the growth of entitlements such as Social Security.

His proposal includes $1 billion to open 15 “manufacturing innovation institutes”; $50 billion for upgrades to roads, bridges and other infrastructure; plus money for 100,000 science and math teachers. It includes more than $4 billion to help secure overseas diplomatic facilities in the aftermath of the fatal Sept. 11 attack in Libya and $580 million to help fledgling democracies in the post-Arab Spring era.

It calls for a $75 billion preschool program for low- and moderate-income 4-year-olds, financed by raising the federal tax on cigarettes to $1.95 per pack from $1.01.

White House officials say the budget strikes a balance between spurring the economy through spending while reducing projected deficits by $1.8 trillion over the next decade from savings in health care, entitlements and interest as well as new revenue. The deficit would amount to about 2.8 percent of the total economy by 2016 and 1.7 percent by 2023.

Republicans countered that the reduction would be only slightly more than $119 billion because the president wants to restore $1.1 trillion in across-the-board spending cuts that took effect in March and count $675 billion in war savings that were expected regardless of his budget.

To stem the deficit, Obama wants to raise $580 billion in taxes from the wealthy.

He’d raise taxes by requiring households with incomes over $2 million to pay at least 30 percent of their income in taxes. He’d limit tax deductions for the wealthiest 2 percent, including prohibiting individuals from accumulating more than $3 million in tax-deferred retirement accounts. And he’d use a new formula aimed at slowing the growth of Social Security and other benefits, cutting $230 billion from projected spending over the next decade.

One surprise in Obama’s budget was a plan to rework the estate tax and return it largely to 2009 levels. As part of the New Year’s Day deal that raised the top tax bracket for the richest Americans, Obama set the top tax rate for estates at 40 percent and set the per-person exemption from the estate tax at a very high $5.25 million. But in his budget, the president seeks to claw that back by 2018, lowering the exemption rate to $3.5 million and raising the top tax rate to 45 percent.

Senate Minority Leader Mitch McConnell, R-Ky., said the budget is filled with perennial proposals. “It’s mostly the same old thing we’ve seen year after year,” he said.

Under Obama’s plan, discretionary spending that covers most domestic and military programs would remain mostly flat, rising from $1.2 trillion in the first year to about $1.3 trillion a decade later. But spending on entitlement programs – even with Obama’s offer to slow the growth – would balloon from $2.31 trillion in the first year to about $3.61 trillion a decade later.

Some Democrats opposed Obama’s plan because of its more conservative measurement in calculating Social Security cost-of-living adjustments for beneficiaries, though some programs, including those for veterans, would be exempt, and benefits would be increased for the very old.

“It’s not the budget I would write on my own, and it includes several policies that I don’t think are the best ways to tackle the deficit and debt,” said Sen. Patty Murray, a Washington Democrat who chairs the Senate Budget Committee.