Obama Proposes Nearly $4 Trillion Budget For Fiscal 2016

[Nellore Pedda reddy]

WASHINGTON—President Barack Obama proposed a nearly $4 trillion budget package Monday aimed at improving the nation’s infrastructure and boosting middle-class Americans, but with a cost of tax increases on businesses and the wealthy as well as an end to existing spending caps.

 

The budget, much of which Mr. Obama has detailed over the past month, makes a case for easing Washington’s emphasis on deficit-reduction measures, given the strengthening economy. It makes no new effort to fix the swelling costs of Social Security and Medicare.

 

In a message to Congress that accompanied the budget release, Mr. Obama said his proposals were “practical, not partisan.”

The proposed budget calls for $3.99 trillion in spending and $3.53 trillion in revenue, while running a $474 billion deficit in the fiscal year beginning Oct. 1.

 

The 2,000-page plan calls for an end to the automatic, across-the-board spending cuts that both parties agreed to four years ago, dismissing them as “mindless austerity” brought about through “manufactured crises.” Lawmakers reached a bipartisan deal to ease some of the cuts two years ago, but that deal expires in October.

 

While little in the White House budget is expected to advance in the GOP-controlled Congress, many Republicans’ desire to increase spending for the military and infrastructure keeps alive the possibility of modest deals later this year. Mr. Obama is expected to strongly resist calls by Republicans to restore higher funding for the defense budget without equal increases in non-defense domestic spending.

 

Several of the president’s proposals have already evoked a strong backlash on Capitol Hill. Last week, the administration dropped a plan to tax so-called 529 savings accountsafter Republicans said it amounted to a tax hike on the middle class. Top Democrats privately asked the White House to scotch the idea.

 

The budget includes $561 billion in military spending, which includes funds for the West’s confrontation with Russia over its incursion in Ukraine and the U.S.-led fight against Islamic State militants in Iraq and Syria. It also reserves $14 billion for cybersecurity measures.

 

Lawmakers and Mr. Obama have also expressed hope of reaching an agreement on an overhaul of the tax code, but have shown few signs of being able to forge the politically difficult compromises required. Business groups reacted coolly to initial details of the proposal on Sunday, which would impose a one-time 14% tax on approximately $2 trillion in accumulated foreign earnings. They would also face a 19% minimum tax on future foreign profits.

ENLARGE

Barack Obama walks to greet people in the audience in the East Room of the White House on Friday. Obama’s budget calls for $4 trillion in spending and $3.5 trillion in revenue, while running a $474 billion deficit. PHOTO:ASSOCIATED PRESS

Congressional Republicans have rejected many of the spending proposals underpinning Mr. Obama’s budget when many in the GOP remain focused on reducing the budget deficit.

 

“If he comes with a serious [budget] proposal that meets those principles of lowering the deficit and starts to deal with our long-term spending, I know Republicans would be glad to have that dialogue—but he’s got to come within those parameters,” said Rep. Marlin Stutzman (R., Ind.).

 

The White House still says it can reduce the deficit by $1.8 trillion over the next decade, relative to current levels. Some of the steps to get there, such as $638 billion in tax increases on top earners, are a nonstarter with Republicans and haven’t moved anywhere when proposed in the past. It also presumes $160 billion in savings from better economic growth from a comprehensive immigration overhaul that faces long odds in Congress.

 

This year, Mr. Obama has also proposed an additional $320 billion in tax increases to finance tax cuts for low- and middle-income earners and other spending.

 

An improving economy has sharply reduced deficits from their levels of more than $1 trillion early in Mr. Obama’s first term, when the government boosted spending sharply during the financial crisis. That has reduced the urgency for an elusive bipartisan push to rein in spending on Social Security and Medicare, both of which result in higher deficits during the next decade as the Baby Boom generation retires.

 

And in a reminder that even a stronger economy can only do so much to stem the tide of red ink, the White House last summer revised down its projections of the potential growth of the U.S. economy. Monday’s budget illustrates the brunt of those forecasts, which resulted in slightly less revenue than previously forecast.

 

For example, the deficit for the current fiscal year stands at $583 billion. That is up from the $564 billion forecast from one year earlier, and up from the $485 billion deficit for fiscal 2014.

 

While the White House sees the deficit declining to $474 billion in fiscal 2016, deficits are projected to rise in 2018, and they are forecast to rise to slightly higher levels in each of the years after that than they were last year. Still, because the White House projects strong economic growth, it sees deficits remaining at around 2.5% of gross domestic product, which is in line with historical averages.

 

The White House projects the GDP, the broadest measure of goods and services produced across the economy, will expand at a 3% rate in the 2015 and 2016 calendar years. It sees the unemployment rate dropping to 5.3% by the end of this year and to 4.8% by the end of 2017.

 

Republicans are set to offer their own budget proposal this spring, but both parties have to clear other budget hurdles first. Funding for the Department of Homeland Security runs out later this month. Republicans extended funding for the agency through February to seek leverage in a bid to reverse Mr. Obama’s executive action on immigration last year.

 

Lawmakers must also vote to raise the federal debt limit, which has been extended through mid-March. The Congressional Budget Office last week said the Treasury Department could take certain steps to avoid hitting the debt ceiling until September or October.