President Obama’s Budget and the Pending Budget Fight

President Obama later today will propose a 10-year budget plan that would increase the national debt by $7.2 trillion over 10 years -- $1.1 trillion less than if it weren't implemented. The plan shows that Obama will not take the lead on any aggressive measure to eliminate the nation’s $14 trillion debt. This sets up the Obama administration on a collision course with Republicans, who are calling for serious deficit reduction and spending cuts. On Friday night, House Republicans unveiled a spending bill to fund the government for the next seven months that they say will reduce the president’s requested spending levels this year by at least $100 billion. ( Read more about that HERE.)

The Obama administration says two-thirds of its proposed $1.1 trillion in deficit reduction would come from spending cuts, and one third from tax increases. The President will today propose a budget for 2012 in which the U.S. government would take in $2.627 trillion and spend $3.729 trillion. The 2012 budget deficit would be $1.101 trillion, less than this year’s projected $1.645 trillion deficit. And yet of the even modest suggestions the president makes (recall that his Debt Commission would have reduced the debt by $4 trillion over 10 years) will be politically problematic. Northeast Members of Congress and Democratic Senate Majority Leader Harry Reid are already expressing skepticism about his proposal to cut energy payment assistance to the poor. The president’s proposals to reduce the amount wealthier Americans can deduct on the income taxes for interest on mortgages or charitable giving were made last year and went nowhere quickly. Among the tax increases proposed: • ending subsidies for oil and gas companies ($46 billion/10 years); and • reducing the rate at which those in the highest tax bracket and some people in the second highest bracket can itemize tax deductions in areas such as interest on home mortgages and charitable giving The Obama administration is also proposing letting expire after 2012 the lower Bush tax rates on income over $200,000 for an individual $250,000 for a family but they are not including this revenue when projecting the $1.1 trillion in deficit reduction. Among the spending freezes/cuts: • a five-year spending freeze over non-security-related discretionary spending ($400 billion/10 years); • cutting $300 million in Community Block Grants, which help cities and counties fund low income housing and anti-poverty programs; • cutting the low-income heating assistance program (LIHEAP) in half, or by $2.5 billion; • cutting $125 million from the Great Lakes Restoration Initiative; • cutting more than $1 billion in grants to large airports; • cutting $950 million in states’ funds for water treatment plants and other infrastructure; and • having the Pentagon budget grow at just the rate of inflation would cut $78 billion At no point in the president’s 10-year projection would the U.S. government spend less than it's taking in. The budget would bring down the percentage that the debt is of GDP from this year's astronomical 10.9 percent to 3.2 percent in 2015. Administration officials say that by 2017 the projected deficit ($627 billion) would consist entirely of the interest on the current debt. The administration is proposing that the annual Medicare “Doc Fix” be paid for through changes to Medicare that include reductions in payments to hospitals and the increased use of generic drugs. The reductions in itemized tax deductions for higher wage-earners would pay for the annual adjustment of the alternative minimum tax so it doesn’t impact middle class households. -- Jake Tapper

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