Obama's $3.6 trillion budget marks a major shift

  • Article by: JACKIE CALMES , New York Times
  • Updated: February 26, 2009 - 11:04 PM

President doesn't trim his ambitions in a budget that reshapes priorities on health care, taxes and the environment.

WASHINGTON - President Obama, proclaiming a "once in a generation" opportunity, proposed a 10-year budget on Thursday that reflects his determination in the face of recession to invest trillions of dollars and his own political capital in reshaping the nation's priorities.

He would overhaul health care, arrest global warming, expand the federal role in education and shift more costs to the wealthiest taxpayers and corporations.

In a veiled jibe at the Bush years, Obama said his budget breaks "from a troubled past" and attributed the current economic maelstrom to "an era of profound irresponsibility that engulfed both private and public institutions from some of our largest companies' executive suites to the seats of power in Washington, D.C."

Without trimming his ambitious campaign promises, the president projects a fiscal 2010 budget of nearly $3.6 trillion, and a deficit for the current fiscal year of $1.75 trillion -- a level not seen in six decades. He claims he would shrink annual deficits mostly through higher revenues from rich individuals and polluting industries, by reducing war costs and by assuming a rate of economic growth by 2010 that even some White House economists consider overly rosy.

None of the new taxes and other sources of revenue, however, would take effect until the economy recovers, administration officials said.

Obama's first budget was light on proposals to cut spending, despite a previous promise that the government would be "cutting what we don't need to pay for what we do." But the cuts he does propose, contrasted against his new spending, underscore the change he seeks.

The fight ahead

Obama would slash about $5 billion in the coming year for direct payments to agribusinesses and farmers with more than $500,000 in annual revenue, and $4 billion in annual subsidies to private banks that make college loans. Instead he would boost spending for government-provided Pell Grants to needy students and for the first time index the maximum yearly grant for inflation.

Those two cuts alone will provoke big fights with the farm and banking lobbies. Republicans and business groups condemned the tax proposals. Robert Greenstein, director of the left-leaning Center on Budget and Policy Priorities, praised the budget as "bold, courageous and honest" but acknowledged that it takes on "one vested interest after another, and that will require all of the president's skills to get through Congress."

Republicans in Congress were quick to charge that Obama's proposals to raise taxes on the wealthy and businesses would be job-killers, and served notice that they would challenge Obama's agenda by drawing an ideological distinction with the Democrats.

"I have serious concerns with this budget, which demands hardworking American families and job creators turn over more of their hard-earned money to the government to pay for unprecedented spending increases," Sen. Mitch McConnell of Kentucky, the Senate Republican leader, told reporters.

Having inherited an economy in recession and reeling from interrelated credit and housing crises, Obama starts off from a stunning deficit for 2009 that is projected to reach $1.75 trillion when the fiscal year ends Sept. 30, or nearly four times last year's shortfall. That would represent 12.3 percent of the gross domestic product, a deficit level that is larger than any since the end of World War II.

By the last year of his term, in the 2013 fiscal year, Obama projects a deficit of $533 billion, or 3 percent of the overall economy, a level that economists consider sustainable. Even so, he foresees the level of the nation's debt held by the public rising from 58.7 percent in the current year to 67.2 percent in a decade -- a level not seen since 1951.

Pushing in new directions

Instead of reining in his ambitions or slowing the growth of government, Obama would aggressively use the government's powers of spending and taxation to push the private market in new directions.

With higher taxes on the wealthy and savings squeezed from health-care providers, drugmakers and insurers, Obama would create a $634 billion, 10-year "health reform reserve" as a down payment to finance disease prevention, wellness programs and research on cost-effective treatments to ultimately cut health costs. More than any other expense, health care is driving future projections of unsustainable deficits. The health reserve also would be used to create affordable insurance programs for individuals and employers.

And Obama's tax proposals would reverse a trend toward greater income inequality in recent years by adding about $1 trillion over 10 years to the tax burden of the top 5 percent of taxpayers. He would let the Bush income tax cuts lapse after 2010 as scheduled for people at that income -- he would extend them for everyone else -- and limit the deductions that top-earners can take. Obama also would raise income taxes on hedge fund and private equity partners.

Republicans charged that Democrats were returning to their tax-and-spend habits of the past. Sen. Judd Gregg of New Hampshire, the senior Republican on the Senate Budget Committee and for a short time recently Obama's nominee to be Commerce secretary, asked, "Where is the restraint on spending?"

Obama is expected to send a complete budget plan to Congress in April.

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