WASHINGTON — President Obama’s $3.78 trillion budget Wednesday provided fresh evidence that the federal government remains deeply divided over key spending and tax issues and that government appears poised to keep limping along without a broad budget agreement.
Unable to reach agreement to cut spending or raise taxes, that means the federal government is likely to be funded by another “continuing resolution,” or stopgap spending bill, extending the status quo of current spending and tax policies when the next fiscal year starts Oct. 1.
About all that will be clear in the coming weeks is that Capitol Hill lawmakers are once again deadlocked. Three different visions of how government should work are on the table, as Senate Democrats and House Republicans approved their own spending plans last month.
Obama tried to offer some compromise Wednesday, most notably by proposing to slow the annual increases in Social Security benefits. His spending proposal also 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.
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It also 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 a pack from $1.01.
To stem the deficit, Obama wants to raise $580 billion in taxes from the wealthy. He’d raise taxes by requiring households with incomes of more than $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.
One surprise in his 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.
But Obama’s proposal convinced no one on Capitol Hill that a grand bargain is within reach to stop the nation’s $17.2 trillion debt from continuing to grow, let alone start to shrink. “I don’t think we should talk about a grand bargain,” said House Budget Committee Chairman Paul Ryan, R-Wis.
The gaps are too wide. Obama and Democrats want higher taxes, Republicans refuse.
Obama and Republicans disagree on the future of Medicare. Republicans want to allow seniors the choice of private coverage or Medicare starting in 2024. Democrats are opposed.
Obama proposed slowing the growth of Social Security benefits in his new budget. Democrats were not pleased.
Most crucially, Republicans want the budget to eventually return to balance. Democrats see that as unrealistic anytime soon. Obama and Senate Democrats peg their lowest annual deficits during the next decade at about $400 billion.
All these are profound disagreements, unlikely to be resolved in a matter of months, perhaps years. Some progress has been made, notably the 2011 deal to reduce anticipated deficits with less spending, and the New Year’s Day measure to raise an additional $600 billion.
Obama on Wednesday touted his new plan as an effort to inch toward the Republicans.
He called his budget one that would allow lawmakers to look beyond the fiscal squabbles that have defined Washington, saying it shows it’s possible to 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.
Republicans weren’t buying it. “It doesn’t break new ground,” Ryan said. Added House Speaker John Boehner, R-Ohio: “We don’t need to be raising taxes on the American people.”
Democrats were lukewarm, largely because of the proposed change in the way Social Security benefits are increased to reflect higher cost of living. Rep. Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, said he had “concerns with aspects of this budget.”
The gap is widest on the four issues that have dominated the budget debate for years: Medicare and other entitlements, taxes, domestic spending and the deficit. The outlook:
• Medicare and entitlements. Obama is willing to take steps that would cut about $401 billion in anticipated federal health spending over 10 years. Wealthy beneficiaries would pay higher Medicare premiums, and lower-income people would get incentives to use generic drugs.
There probably could be some bipartisan agreement on using, beginning in 2015, the “chained Consumer Price Index” method of calculating cost-of-living increases for Social Security and other government programs.
Complaints take two forms. Republicans say Obama’s not going far enough, and Democrats complain he’s hurting those who can least afford the pain. Obama, said Sen. Bernard Sanders, a Vermont independent, is “walking down a very perilous path” with such proposals.
• Taxes. Obama and Senate Democrats want to raise nearly $1 trillion in new revenue over the next 10 years. Obama’s plans include higher taxes for the wealthy and nearly doubling the tobacco tax to help pay for a new preschool program. Republicans offer no new taxes.
Republican leaders believe they’ve gone far enough. Dozens of lawmakers voted for a January pact that allowed tax increases. Some are already nervous, as conservative groups have threatened primaries against some of those Republicans. Another such vote could be politically lethal.
• Domestic spending. The first round of automatic spending cuts, totaling $85 billion, went into effect March 1, and more such reductions are coming.
Obama and Senate Democrats have similar spending aims. Both would end the automatic spending cuts, or sequester. Democrats would replace the sequester with more targeted reductions and increases in spending on infrastructure and other programs.
Senate Democrats propose $493 billion in unspecified domestic reductions over 10 years, including $275 billion saved from health-care programs “in a way that does not harm seniors or families.” Obama’s health-care savings are similar.
Republicans would retain most of the automatic cuts. Some money would be added back to the Pentagon budget, taken from domestic agencies. They would also repeal the 2010 law overhauling the nation’s health-care system.
• Deficit. The federal deficit is estimated to total $973 billion this year.
Republicans insist it’s important to bring the budget back to surplus, and would do so by 2023. Democrats see that as an unrealistic goal. The Senate Democrats’ plan would reduce annual deficits to about $400 billion in about three years, while Obama’s plan would lower the deficit to $439 billion by 2023.
Those numbers made Republicans howl. Obama on Wednesday tried to deflect the barbs and sell the package as a pastiche of tough choices.
Instead, he created bipartisan agreement on one point: reaching a broad accord will be tough, if not impossible.
“Minor reforms,” said Sen. Bob Corker, R-Tenn., considered open to bipartisan dialogue. Added Senate Appropriations Committee Chairwoman Barbara Mikulski, D-Md., usually an Obama loyalist, “There are specifics in the president’s plan around earned benefits about which I have serious concerns.”