Obama proposes $4T budget with tax hikes on the wealthy

By Rebecca Shabad - 02-02-15 11:30 AM EST

President Obama on Monday sent Congress a nearly $4 trillion budget blueprint for 2016 that would raise taxes on the wealthy and businesses while boosting spending on infrastructure and education. [READ OBAMA'S BUDGET REQUEST]

“These proposals will put more money in middle-class pockets, raise wages and bring more high-paying jobs to America,” Obama said in a message to Congress. “To pay for them, the budget will cut inefficient spending and close tax loopholes to make sure that everyone pays their fair share.”

Administration officials cast the plan as balancing the need for “investment” with fiscal discipline, but the Republican Congress will almost certainly reject the spending and tax hikes out of hand.

The proposal busts through the spending limits that were introduced under a 2011 budget deal, requesting $74 billion more in spending for domestic programs and the Pentagon than the caps would allow.

Hawkish Republicans such as Sen. John McCain (R-Ariz.) are pushing to reverse the so-called sequester cuts for the Pentagon, but some fiscal conservatives have resisted, saying they want to keep the budget restrictions in place.

Obama on Monday suggested easing the sequester cuts is non-negotiable.

"I'm not going to accept a budget that locks in sequestration going forward," Obama said during a visit to the Department of Homeland Security. 

To pay for his spending increases, Obama is proposing cuts in mandatory spending, closing tax loopholes and limiting tax benefits. He also finds revenue in immigration reform, arguing a Senate bill that passed in 2013 could raise $160 billion for the government.

One of the highlights of the budget is a $478 billion proposal for infrastructure that would be funded through a one-time tax offer. The “repatriation” provision would allow companies to bring back earnings to the United States at a 14 percent tax rate, generating an estimated $238 billion in revenue for the government, officials said.

Administration officials believe the proposal could kick-start negotiations on corporate tax reform with Republicans in Congress. Rep. Paul Ryan (R-Wis.), the chairman of the House Ways and Means Committee, on NBC’s “Meet the Press” Sunday, reiterated his desire to produce comprehensive tax reform legislation and “find common ground with the administration.”

GOP leaders, however, have already slammed Obama’s broad tax proposal.

The chairmen of Congress’s two budget committees, Rep. Tom Price (R-Ga.) and Sen. Mike Enzi (R-Wyo.), slammed Obama’s blueprint as "the same tired agenda that has failed to deliver.”

“We are ready to move past the new normal of President Obama’s budget and in a new direction. We want to make government more efficient and accountable to hard-working taxpayers by lifting the regulatory burden on families and job creators, and by embracing the innovative spirit that drives American entrepreneurship and success,” they said in a joint statement.

Obama's budget would generate $320 billion in taxes over the next decade by raising the capital gains and dividends rate to 28 percent, which would largely affect couples making more than $500,000 per year, and by implementing a new tax on the country's largest financial companies.

The budget asks Congress to approve $3,000 for a child care tax credit, a college tax credit of $2,500, a second-earner tax credit of $500 and an expanded earned income tax credit for workers without children and non-custodial parents.

Those proposals, the Treasury Department estimates, would benefit more than 44 million households with an average benefit of $600.

Obama also asks Congress for significant discretionary spending increases for education programs, job-training initiatives, cybersecurity systems and efforts to combat climate change.

In addition to the Pentagon’s proposed higher baseline budget, the plans seeks $51 billion for the overseas contingency operations (OCO) fund that largely paid for the wars in Iraq and Afghanistan. With the first war over, and the other winding down, the OCO request would mark a 21 percent drop from the 2015 level. A small portion of the OCO account, $8.8 billion, would be used to fight the Islamic State in Iraq and Syria (ISIS).

The budget proposes a 1.3 percent pay raise to military and federal employees, slightly more than the 1 percent increase the administration implemented in 2014 and 2015 after a three-year pay freeze.

To mark the 50th anniversary of the Voting Rights Act, the budget asks Congress for $50 million to restore and highlight historic sites from the civil rights movement, including Little Rock Central High School in Arkansas and a walking trail in Selma, Ala.

To make room for the spending increases, the budget calls for 101 different cuts and consolidations that would save $14 billion in 2016. Of that total, $3.6 billion would come from discretionary programs, which Congress oversees, while another $10.6 billion would come from weeding out fraud within agencies and accounts such as the Internal Revenue Service (IRS) and the Social Security Disability Insurance Trust Fund.

Among the discretionary cuts are $382 million for the Pentagon’s A-10 fleet, which the service is trying to retire; a $244 million cut to a global fund to fight AIDS, tuberculosis and malaria; a $450 million cut for aid grants for airports, and a $74 million cut in assistance to foreign militaries.

Officials estimate the budget would cut deficits by $1.8 trillion over the next 10 years, and keep annual deficits below 3 percent of gross domestic product (GDP).

In 2016, for example, the budget would bring the deficit down to $474 billion, 2.5 percent of GDP. The deficit last year fell to $483 billion.

Administration officials said debt would fall to 75 percent of GDP in 2016 and even further to 73.3 percent in 2025, much lower than the 79 percent the Congressional Budget Office (CBO) projects would happen if current laws remain unchanged.

By the end of 2015, the budget projects real GDP would be 3.1 percent and the unemployment rate would fall to 5.4 percent.

The budget proposal contains Obama’s initial proposal to tax withdrawals from 529 college plans, but only because the White House abandoned it after the blueprint had already hit the presses.

Republicans and Democrats on Capitol Hill lobbied hard against the proposal, leading Obama to strike it from his plan.

Congressional Republicans are expected to declare much of the budget dead on arrival.

The GOP is expected to introduce a budget blueprint of its own before April 15.

Last updated at 2:02 p.m.