Obama budget: New spending with recycled tax ideas

Washington • The White House is focusing on re-election themes such as jobs and public works projects in President Barack Obama's new budget blueprint while relying on familiar but never enacted tax increases on the wealthy and corporations to reduce future deficits after four years of trillion dollar-plus shortfalls.

Obama's 2013 budget, set for release Monday, is the official start to an election-year budget battle with Republicans. It's unlikely to result in a genuine effort to address the $15 trillion national debt or the entrenched deficits that keep piling on to it. But it will serve as the Democrats' party-defining template on this year's election stakes.

The president's plan is laden with stimulus-style initiatives: sharp increases for highway construction and school modernization, and a new tax credit for businesses that add jobs. But it avoids sacrifice with only minimal curbs on the unsustainable growth of Medicare even as it proposes a 10-year, $61 billion "financial crisis responsibility fee" on big banks to recoup the 2008 Wall Street bailout.

This budget plan, administration officials say, borrows heavily from Obama's recommendations in September to a congressional deficit "supercommittee" that was assigned to come up with at least $1.2 trillion in deficit savings as part of last summer's default-avoiding budget and debt pact. The panel deadlocked and left Washington to struggle with bruising across-the-board spending cuts that kick in next January.

Even before the budget comes out, House-Senate negotiators were working over the weekend on proposals to pay for renewing jobless benefits and Obama's 2 percentage point cut in the Social Security payroll tax due to expire Feb. 29.

Proposals such as requiring a $100 per-takeoff fee on airlines and private jet owners, auctioning broadcast spectrum, and raising pension guarantee insurance premiums are in the mix as negotiators seek $160 billion or more in deficit savings to pay for a 10-month extensive of the payroll tax cut and federal jobless benefits.

The president's budget plan predicts a deficit of $1.3 trillion for 2012 and a $901 billion deficit in the 2013 budget year, which starts Oct. 1. It claims deficit savings of more than $4 trillion over a decade, mixing $1 trillion already banked through last summer's clampdown on agency operating budgets with $1.5 trillion in higher tax revenues reaped from an overhaul of the tax code.

An additional $1 trillion, more or less, would come from war savings, a move that budget watchdogs call an accounting gimmick, especially because the administration also wants to devote some of those savings to pay for $476 billion in road and bridge projects over the coming six years.

The budget also futilely asks Congress to adopt a "Buffett Rule" guaranteeing that households with a yearly income of more $1 million pay federal taxes equal to at least 30 percent of it. Billionaire financier Warren Buffett has made headlines proposing the idea, saying that it's unfair for him to pay a lower tax rate than his secretary.

Republicans say the new tax would push investors into sending money overseas where it would be taxed less. Recycled proposals to curb tax breaks for oil and gas producers are also a dead letter on Capitol Hill.

The administration plan is sure to get a chilly reception from Republicans dead set against tax increases but more than willing to tackle rapidly spiraling Medicare spending.

Last year, House Budget Committee chairman Paul Ryan, R-Wis., upended the Capitol with his Medicare plan. He wanted to gradually replace the current system in which the government pays doctor and hospital bills with a voucher-like plan that would have government subsidizing purchases of health insurance. Scalded Republicans are likely to press a less dramatic version this year.

"The Obama approach is simply more debt, more taxes, and more blaming others," Virginia Gov. Bob McDonnell said in the Republican radio address Saturday. "This will not be a proactive budget built to promote fiscal responsibility and future prosperity. Rather, it appears we'll see a bloated budget that doubles down on the failed policies of the past."

Democrats controlling the Senate appear unlikely to offer a budget at all, for a third straight year. Instead, they are already planning to use last year's budget pact to determine the size of the pie and divide it into 12 annual appropriations bills that set the day-to-day budgets for Cabinet agencies. The move allows 16 Senate Democrats facing re-election to avoid having to make difficult votes on taxes and spending.

The constraints on federal agencies are real: the first outright cut to the Pentagon since the post-Cold War "peace dividend" of the early 1990s; a freeze in spending for medical research at the National Institutes of Health; and a decision to scrap two NASA missions to Mars later this decade.

In a fact sheet released Friday, the White House promoted small-bore initiatives such as a 19 percent increase in "advanced manufacturing" research and development, tax breaks for manufacturers, and $300 million for a program to improve child care and better prepare children for entering school.

The plan offers several breaks to college students and their parents. It would extend an up to $10,000 tax credit for college costs, forestall for one year a looming spike in student loan interest rates and keep the maximum Pell Grant for poor college students at $5,635.

Obama planned to promote the budget at a campaign-style appearance Monday in the Virginia suburbs. The White House is delaying its release until the president's appearance.

While the budget was still being kept under the wraps over the weekend, some of the details have leaked out or been teased by the White House, including a $39 million plan revealed Saturday to better enforce trade rules and bolster inspection of imports at U.S. borders.