It has been quite a week for President Barack Obama. He delivered a well-received major address to a joint session of Congress, saw his public approval ratings jump, hosted music legend Stevie Wonder at the White House for a PBS special, and yesterday released his first budget. If there was any thought that this President would preserve the status quo, this budget is hard evidence that he is serious about instituting change in the way the federal government does its business. The $3.5 trillion budget represents the largest expansion of the role of our nation’s government since the administration of Lyndon B. Johnson over four decades ago.
In remarks delivered at the Executive Office Building in the White House complex, President Obama said, “In keeping with my commitment to make our government more open and transparent, this budget is an honest accounting of where we are and where we intend to go. For too long, our budget has not told the whole truth about how precious tax dollars are spent.”
At the heart of Mr. Obama’s first budget is a controversial increase in income taxes on households with gross income of more than $250,000 a year. It is a move that will reverse the Bush era tax cuts for higher earners. Individuals making more than $200,000 a year and households making more than $250,000 would lose their Bush era tax cuts. Their top income tax rate would rise to just under 40 percent from 35 percent. The tax increase is already drawing criticism from Republicans and some taxpayers who insist earners at that income level are not wealthy. However, individuals are not the only group of taxpayers affected. The budget also raises taxes on oil and gas companies and corporations that operate offshore are also affected by new limits in their ability to defer taxes on foreign earnings. Hedge fund managers will see their multi-million dollar compensation taxed as regular income rather than capital gains, a change that will increase their tax rate from 15 percent to almost 40 percent.
The President claims the tax increases are necessary to fulfill his pledge to cut the size of the federal deficit in half by the end of his first term. Next year’s deficit is projected to reach close to $1.2 trillion, while the current deficit is estimated at $1.75 trillion.
Another element of the budget proposal that serves to honor one of the President’s campaign promises is a $634 billion reserve fund to finance a major expansion of health care for the uninsured. The health care fund is also projected to include savings gained from increasing efficiencies in the Medicare and Medicaid programs, the two government sponsored health care programs for the elderly and poor. It is meant to be the first step toward creating a universal health care system.
In referencing his health care proposals the President said, “Because of crushing health care costs and the fact that they drag down our economy, bankrupt our families, and represent the fastest-growing part of our budget, we must make it a priority to give every single American quality, affordable health care. That's why this budget builds on what we have already done over the last month to expand coverage for millions more children, to computerize health records to cut waste and reduce medical errors, which save, by the way, not only tax dollars, but lives.”
In addition, $15 billion would be set aside for “clean energy” technologies and making Mr. Obama’s “Making Work Pay” tax credit permanent. The tax credit was included in the recently passed “American Recovery and Reinvestment Act of 2009.” It provides a $400 per-person and $800 per family credit allowance. The budget also makes permanent the $2500 tax credit for college education that was part of the stimulus package.
The budget would phase out direct subsidies to farmers who make more than $500,000 a year and give a 2.9 percent pay raise to all uniformed members of the military and a 2 percent raise for all other federal government employees.
The political message that this budget sends is that “business as usual” is over in the nation’s capital. The expansive vision the President has put forth is also an indication of the confidence he has gained by the high public approval he has after being in office for one month. In his speech Tuesday night, he indicated that despite the severity of the recession he would not be paralyzed by inaction or fear, and would move boldly to move the country in a new direction. This budget is evidence of that intent and more. While he spent significant political capital during the debate over the stimulus package to build bipartisan support, this budget is a shot across the bow of the Republican minority in Congress; signaling President Obama’s willingness to take on a more partisan posture to move the issues in which he believes. Many moderate Democrats were caught off-guard by the boldness of Mr. Obama’s budget, and are sure to get a lot of attention from the White House as the President tries to build support for his proposals.
President Obama sought to portray the budget as more than just a financial document but the embodiment of the nation’s principles. “For in the end, a budget is more than simply numbers on a page. It is a measure of how well we are living up to our obligations to ourselves and one another. It is a test for our commitment to making America what it was always meant to be -- a place where all things are possible for all people. That is a commitment we are making in this, my first budget, and it is a commitment I will work every day to uphold in the months and years ahead.”
President Obama has his work cut out for him as the budget is panned by Congress, and is challenged by every constituency that is negatively impacted. There has been no other President in history shouldering the economic burden as this President, with trillions of dollars of taxpayers’ dollars on the line in an unprecedented effort to revive the American economy.