Obama Budget Raises Taxes on Rich to Spend on Job Creation

Washington – President Obama’s final budget request of his term amounts to his agenda for a desired second term, with tax increases on the affluent and cuts in spending, especially from the military, both to reduce deficits and to pay for priorities like education, public works, research and clean energy.

While Republicans issued the usual declarations that the package was dead on arrival at the Capitol on Monday, Mr. Obama harbors hope of winning some victories yet. The likelihood of a post-election lame-duck session and a raft of laws expiring at year’s end — including the Bush-era tax cuts — could give him leverage to force compromises even on taxes. Both parties are already calculating for the prospect of a December showdown.

The budget request for the 2013 fiscal year, which starts Oct. 1, and its projections for the years that follow, reflect Mr. Obama’s vision for another term in which he would switch from years of temporary stimulus measures to promoting long-term initiatives to spur new business and manufacturing activity and help educate Americans for new skills that businesses demand.

After winding down two wars overseas, Mr. Obama proposed to make good on his often-repeated call to bring troops back and start nation-building at home in symbolic fashion: The budget would use projected military savings — a gimmick, Republicans say — to help pay for a six-year, $476 billion program to modernize the nation’s transportation network.

And Mr. Obama once again proposed to narrow inequality in income and opportunity between high- and lower-income Americans, while also reducing annual deficits, through his proposals to raise $1.5 trillion over 10 years mostly from the wealthy but also from closing some corporate tax breaks, chiefly for oil and gas companies.

Overhauling the tax codes would be a priority in a second Obama term. Later this month, the administration will propose a revision of the corporate tax code to root out many tax breaks and lower the 35 percent rate, though Mr. Obama said the change must not raise any more revenues than the current system, despite the nation’s chronic deficits.

While many of his ideas are retreads of proposals Republicans and some Democrats have blocked before, for the first time Mr. Obama proposed to tax dividends like ordinary income for taxpayers who make more than $250,000, as dividends were before the Bush administration. The change, which would nearly double the rate for affluent taxpayers to 39.6 percent from 20 percent, would raise about $206 billion over 10 years.

Republicans are certain to oppose such tax increases as they have before. But the question this year is whether Mr. Obama after the election, win or lose, can use his veto and looming budget deadlines to force some compromises — even a “grand bargain” of spending cuts and revenue increases for deficit reduction could be possible, Mr. Obama has told people privately.

“The president’s budget is a reasonable opening move for what will likely be major budget negotiations after the election and before the Bush tax cuts are due to expire at the end of the year,” said Jim Kessler, vice president for policy at Third Way, a centrist policy organization.

“The real work begins in November, and right now these opening moves are just pawns shifting on the chessboard,” Mr. Kessler added. “As a deficit hawk, I’m guardedly optimistic about this budget.”

After the election, Republicans will be eager to forestall two legislative events. One is the expiration of the Bush-era tax cuts after Dec. 31; Mr. Obama in his budget reiterated his vow to support an extension only for taxpayers making less than $250,000. The second comes in January, when $1.2 trillion in automatic 10-year spending cuts begin, half in military programs, unless the White House and Congress agree to alternative savings.

Republicans will need Mr. Obama’s signature to win legislation that alters either of those events.

The president’s budget incorporates his alternative to the automatic cuts. Mr. Obama claims $3 trillion in deficit reduction from higher revenues and spending cuts, on top of nearly $1 trillion in cuts over 10 years from annual discretionary spending that he and Congress agreed to in a deal last August. That does not include the so-called entitlement programs, Medicare, Medicaid and Social Security, whose fast-growing costs — especially for Medicare — are driving the projections of mounting federal debt.

The budget, with its trade-off of higher taxes on the wealthy for initiatives benefiting lower- and middle-income workers, reflects Mr. Obama’s campaign themes. Polls show that Americans by large majorities support taxing the wealthy more. And Democrats believe they have a potent issue in Republicans’ dogged opposition, especially if the Republican nominee turns out to be Mitt Romney, the former Massachusetts governor whose personal fortune and acknowledged relatively low tax rate for his investment and dividends income have had him on the defensive even in the Republican nomination contest.

Mr. Obama traveled to Northern Virginia Community College near Washington to unveil his budget before a gymnasium packed with the sort of young voters his re-election campaign is courting. As he did in the State of the Union address last month, Mr. Obama framed the budget debate as an effort to make sure “everyone plays by the same set of rules, from Washington to Wall Street to Main Street.”

He rousingly promoted his initiatives to make college more affordable and to train workers for health care, the sciences and advanced manufacturing. And he called for Warren E. Buffett and other wealthy Americans to pay an income tax rate no lower than what secretaries pay. Mr. Obama’s “Buffett Rule” would set a minimum 30 percent rate on income above $1 million, replacing the current alternative minimum tax that increasingly hits upper-middle-class taxpayers.

“We don’t begrudge success in America,” Mr. Obama said. But, he added, “We do expect everybody to do their fair share, so that everybody has opportunity, not just some.”

At the Capitol, Senator Mitch McConnell, the Republican minority leader, said Mr. Obama “released a budget that isn’t really a budget at all. It’s a campaign document.”

He ridiculed Senate Democrats for saying they would not put the budget to a vote, though Republicans did not offer Bush administration budgets for a vote, either, given the likelihood of defeat. And Mr. McConnell chastised the White House chief of staff, Jacob J. Lew, who until recently was Mr. Obama’s budget director, for incorrectly saying on Sunday television talk shows that a budget needs 60 Senate votes to pass so Republicans would block it; a budget resolution needs a simple majority.

Republicans slammed Mr. Obama for breaking a promise at the start of his term to cut the deficit in half, measured as a share of the economy. Administration officials counter that few people knew in early 2009 how severe the recession was, and each year global forces like Europe’s debt crisis have stymied a full recovery.

The current year’s deficit of $1.3 trillion is the same in dollar terms as when Mr. Obama took office. Measured as a share of an improved economy it is smaller — 8.5 percent of the gross domestic product compared with 9.2 percent in 2009. For 2013 the deficit would be $901 billion, or 5.5 percent of G.D.P.

The budget projects that the deficit in 2017 will reach 3 percent of G.D.P., the level that economists generally consider the maximum sustainable one, and remain slightly below 3 percent annually through 2022. But such projections have proved minimally reliable for most presidents. Also, the projections cut off at 2022, about the point when an aging population of baby boomers will be drawing so much from federal health and retirement programs that spending will drive the accumulated federal debt to dangerous heights again.

Helene Cooper contributed reporting from Annandale, Va.

Read the original: “Military Cuts and Tax Plan Are Central to Obama Budget