WASHINGTON — The $4 trillion budget that President Barack Obama released Monday is more utopian vision than pragmatic blueprint for his final years in office, but buried in the document are kernels of proposals that could take root even with a hostile Republican Congress.
In his penultimate budget, Obama proclaimed victory in the long climb from deep recession and said the time had come to loosen the strictures of austerity to invest in the nation’s future. He relies on large tax increases — on corporations and the wealthy — to finance efforts in education, infrastructure construction and workforce development that he says have waited far too long.
“I want to work with Congress to replace mindless austerity with smart investments that strengthen America,” the president declared on a visit to the Department of Homeland Security.
He said he would not accept spending bills that maintained tough budget caps he agreed to in 2011, nor would he loosen budget controls on military spending without relaxing them for domestic programs.
But hidden in some of his most ambitious proposals to diminish the wealth gap and remake the corporate tax code are areas of potential compromise that nod to Republican ideas. They include an expansion of the earned income credit for the working poor; a revitalized Pentagon budget; and a surge in spending on roads, bridges, airports and other infrastructure, financed by a new tax rate on foreign corporate profits.
Absent from the plan is any pretense of remaking the main drivers of the long-term debt — Social Security and Medicare — a quest that has long eluded both parties. In all, such entitlement programs would go from consuming 13.2 percent of the economy this year to 14.8 percent in a decade. Domestic and military programs under Congress’ discretion would shrink to 4.5 percent of the economy in 2025, from the current 6.4 percent.
“It’s a visionary document and basically says, ‘You’re with me or you’re not,’ and we can have big philosophical arguments about the role of government, and perhaps in 2016 we will,” said Jared Bernstein, a former top economic adviser to Vice President Joe Biden. “The other way to look at it is, it’s a Chinese menu, and you’re not going to share the duck, but you might split the egg rolls.”
The document is undergirded by two major presidential initiatives that have virtually no chance in Congress: large tax increases on multinational corporations and the rich, and a comprehensive immigration law that would lift the economy with millions of newly legalized, taxpaying workers.
The proceeds of those initiatives would pay for free community college, more generous child care subsidies and education tax credits, paid sick leave, expanded unemployment benefits, and tax credits for two-earner middle-class couples, among other offerings.
Obama emerged from last year’s midterm election losses determined to reinforce — rather than scale back — his belief that the government should play a fundamental role in spreading economic prosperity.
“As we move forward with the legislative battles of the next two years and then the presidential election, the dominant question in the country will be who has better ideas to address the country’s economic needs,” said Geoff Garin, who conducts polling for Democrats. “Democrats were criticized in the last campaign for not running on a positive economic vision, and the president’s budget this year does lay out that vision.”
Yet it was a vision that Republicans quickly made clear they did not share.
“The president says he wants to work with Congress, but everything he does indicates the opposite,” said Rep. Kevin McCarthy, R-Calif., the House majority leader. “His latest budget simply isn’t a serious proposal.”
But Obama does have pressure points to force Republicans to the negotiating table. Republican defense hawks such as Sen. John McCain of Arizona, chairman of the Senate Armed Services Committee, want to free the military of automatic spending caps, something Obama will not accept without relief for domestic programs as well.
“I’m not going to accept a budget that locks in [the spending caps] going forward,” Obama said Monday. “It would be bad for our security and bad for our growth. I will not accept a budget that severs the vital link between our national security and our economic security.”
Calls for balance
For Republicans in Congress, however, the great strategic cause is balancing the budget. If that trumps other areas of agreement, alignment may not be possible.
Under the president’s plan, the federal deficit would drop from $583 billion this year — or 3.2 percent of the economy — to $474 billion in 2016, 2.5 percent of the economy. In nominal dollars, the red ink would drift upward from there, to $687 billion by 2025, adding nearly $5.7 trillion to the national debt over a decade.
Measured against the gross domestic product, the deficit would remain stable, and the debt would drift downward, from 75 percent of the economy to 73.3 percent in 2025.
For Republican leaders, that is not enough. Sen. Michael Enzi of Wyoming and Rep. Tom Price of Georgia, the new chairman of the congressional budget committees, released a joint statement on Monday declaring, “A proposal that never balances is not a serious plan for America’s fiscal future.”
They vowed to produce a budget that does what the White House has explicitly said is unnecessary, namely one that brings spending and taxes into balance.
Senate Majority Leader Mitch McConnell, R-Ky., said Obama had fallen short of his promise to include “practical, not partisan” ideas in his budget.
He called the plan “another top-down, backward-looking document that caters to powerful political bosses on the left and never balances — ever.”
Jonathan Weisman and Julie Hirschfeld Davis, The New York Times
IN THE KNOW: Highlights
INFRASTRUCTURE: The budget includes a six-year, $478 billion public works program for highway, bridge and transit upgrades. About $238 billion would come from a one-time 14 percent mandatory tax on the up to $2 trillion in estimated U.S. corporate earnings that have accumulated overseas. That rate is significantly lower than the current top corporate rate of 35 percent. The top corporate rate for U.S. earnings would drop to 28 percent; foreign profits would be taxed at 19 percent, with companies getting a credit for foreign taxes paid. The remaining $240 billion would come from the federal Highway Trust Fund, which is financed with a gasoline tax.
CAPITAL GAINS RATE: It would increase on couples making more than $500,000 per year, from 23.8 percent to 28 percent. Obama wants to require estates to pay capital gains taxes on securities at the time they are inherited. He is trying to impose a 0.07 percent fee on the roughly 100 U.S. financial companies with assets of more than $50 billion.
TAX BREAKS: President Barack Obama would take the $320 billion that the capital gains tax increases would generate over 10 years and funnel them into low- and middle-class tax breaks. His ideas: a credit of up to $500 for two-income families, a boost in the child care tax credit to up to $3,000 per child under age 5, and overhauling breaks that help pay for college.
BUDGET DEFICIT: The projected budget deficit would be $474 billion, slightly higher than the $467 billion forecast by the Congressional Budget Office for 2016. For the budget year that ended Sept. 30, the actual deficit was $483 billion. That was a marked improvement from the $1 trillion-plus deficits during Obama’s first years in office, when the country was struggling to emerge from a deep recession.
The Associated Press