WASHINGTON - Taking a pass on reining in government growth, U.S. President Barack Obama unveiled a record $3.8 trillion election-year budget plan Monday, calling for stimulus-style spending on roads and schools and tax hikes on the wealthy to help pay the costs. The ideas landed with a thud on Capitol Hill.
Though the Pentagon and a number of Cabinet agencies would get squeezed, Obama would leave the spiralling growth of health care programs for the elderly and the poor largely unchecked. The plan claims $4 trillion in deficit savings over the coming decade, but most of it would be through tax increases Republicans oppose, lower war costs already in motion and budget cuts enacted last year in a debt pact with GOP lawmakers.
Many of the ideas in the White House plan for the 2013 budget year will be thrashed out during this year's election campaigns as the Republicans try to oust Obama from the White House and add Senate control to their command of the House.
"We can't just cut our way into growth," Obama said at a campaign-style rally at a community college in the vote-rich Northern Virginia suburbs. "We can cut back on the things that we don't need, but we also have to make sure that everyone is paying their fair share for the things that we do need."
Republicans were unimpressed.
"It seems like the president has decided again to campaign instead of govern and that he's just going to duck this country's fiscal problems," said House Budget Committee Chairman Paul Ryan, R-Wis.
By the administration's reckoning, the deficit would drop to $901 billion next year — still requiring the government to borrow 24 cents of every dollar it spends — and would settle in the $600 billion-plus range by 2015. The deficit for the current budget year, which ends Sept. 30, would hit $1.3 trillion, a near record and the fourth straight year of trillion-plus red ink.
Obama's budget blueprint reprises a long roster of prior proposals: raising taxes on couples making more than $250,000 a year; eliminating numerous tax breaks for oil and gas companies and approving a series of smaller tax and fee proposals. Similar proposals failed even when the Democrats controlled Congress.
The Pentagon would cut purchases of Navy ships and F-35 Joint Strike Fighters — and trim 100,000 troops from its rolls over coming years — while NASA would scrap two missions to Mars.
But there are spending increases, too: The Obama plan seeks $476 billion for transportation projects including roads, bridges and a much-criticized high-speed rail initiative. Grants for better performing schools would get a big increase under Obama's "Race to the Top" initiative, and there would be an $8 billion fund to train community college students for high-growth industries.
Republicans accused the president of yet again failing to do anything meaningful to reduce deficits that could threaten the country with a European-style debt crisis unless they are wrestled under control.
As a political document, the Obama plan blends a handful of jobs-boosting initiatives with poll-tested tax hikes on the rich, including higher taxes on dividends and income earned by hedge fund managers. That would allow Obama to draw a contrast with GOP front-runner Mitt Romney, whose personal fortune and relatively low tax rate would be an issue in the general election campaign.
Another contrast with Republicans will come on Medicare, the enormously popular health care programs for the elderly. Obama leaves the program mostly alone, while Republicans are on record in favour of gradually replacing the current system in which the government pays doctor and hospital bills with a voucher-like plan that would have government subsidize purchases of health insurance.
Nor does Obama tackle Social Security's fiscal imbalance. Payroll taxes paid into the program fall well short of what's needed to cover benefits; the shortfall is made up by tapping into a $2.7 trillion trust fund that's built up since the last overhaul of the program in the early 1980s.
Said Romney: "We can save Social Security and Medicare with a few commonsense reforms, and — unlike President Obama — I'm not afraid to put them on the table."
The president's tax proposals and most of his new jobs initiatives are likely to arrive as dead letters on Capitol Hill, where the immediate focus is on Obama's proposal to renew a two-percentage-point cut in Social Security payroll taxes and jobless benefits for the long-term unemployed. House GOP leaders did an abrupt about-face on Monday and declared that they are willing to add to the deficit the $100 billion cost of renewing the payroll tax cut.
While Obama and Congress appear headed for deadlock over big-picture questions such as Medicare cuts and tax hikes, there's still the work of filling in the details of last summer's budget and debt pact, which set tight caps on annual appropriations bills funding the day-to-day operations of government.
Those caps are putting most agencies, except the Department of Veterans Affairs, in a pinch.
The Pentagon, which had grown used to budget increases well in excess of inflation until recently, would absorb its first outright budget cut since the post-Cold War "peace dividend" of the early 1990s, including cuts to major weapons systems, fewer combat ships and the reduction in troops.
On taxes, Obama proposes allowing the Bush-era tax cuts to expire at the end of this year for families making $250,000 or more per year.
Obama, as he has in the past, also proposed capping tax deductions taken by the wealthy and would also put in place a rule named for billionaire Warren Buffett that would seek to make sure that households making more than $1 million annually pay at least 30 per cent of their income in taxes. The "Buffett Rule" would replace the alternative minimum tax, which was originally designed to ensure that wealthy families pay at least some tax.
Obama would also impose a new $61 billion tax over 10 years on big banks aimed at recovering the costs of the financial bailout and providing money to help homeowners facing foreclosure. The proposal also would raise $41 billion over 10 years by eliminating tax breaks for oil, gas and coal companies.
The plan contains a host of other proposals whose budget impact would be modest but would be felt by almost everyone, among them an end to Saturday mail delivery. There's also a plan to raise $593 million by eliminating deductions for golf course conservation easement and a plan that would raise the one-way security fee on airline tickets to $7.50, up from fees that are now as low as $2.50 for a non-stop flight.
To spur job creation in the short term, Obama is proposing a $50 billion "upfront" investment for transportation, $30 billion to modernize at least 35,000 schools and $30 billion to help states hire teachers and police, rescue and fire department workers. Republicans in Congress, opposed to further stimulus spending, have blocked these proposals in the past.
The Obama budget seeks $360 billion in savings in Medicare and Medicaid mainly through reduced payments to health care providers, avoiding tougher measures, advocated by House Republicans and the deficit commissions, which supporters said were critical to the cause of restraining health care costs.
The projections in Obama's budget show that he is doing little to restrain the surge in these programs that is expected with the retirement of baby boomers. Obama's budget projects that Medicare spending will double over the coming decade from $478 billion this year to almost $1 trillion in 2022.
Medicaid, the government health care program for the poor and disabled, would more than double from $255 billion this year to $589 billion by 2022.
Associated Press Economics Writer Martin Crutsinger contributed to this story.