Starting from a budget deficit that will shatter peace-time records, President Obama will propose a budget blueprint on Thursday that foresees cutting the red ink in half by the end of his term in office, a senior administration official said Saturday.
Even before passage of his $787 billion stimulus plan, the president's budget writers foresaw an inherited deficit of $1.3 trillion, equivalent to 9% of the gross domestic product. With the stimulus and Mr. Obama's proposed housing rescue, the red ink is likely to be well in excess of $1.5 trillion, and possibly as high as $1.9 trillion, according to private forecasts.
Mr. Obama will promise that he can lower that total to $533 billion, or 3% of GDP, by 2013, primarily through savings from withdrawing combat forces from Iraq and allowing George W. Bush's tax cuts for families earning over $250,000 to lapse in 2011.
The forecast for a sharp drop in the deficit will also rest on the assumption that the economy recovers from the current slump before the end of the president's first term. The official declined to say how any additional spending on economic stimulus or bailouts of the financial or other sectors -- actions many economists consider inevitable -- would affect the upbeat deficit projection.
The budget will also detail some of the federal programs Mr. Obama will propose to eliminate or streamline, with more details to come later in the spring, the administration official said.
After unveiling an economic rescue program with a cost likely to exceed a trillion dollars, the president is now eager to emphasize his commitment to fiscal rectitude over the long term. On Monday, the White House convenes a summit on fiscal discipline, to begin tackling the burgeoning costs of entitlements such as Social Security and Medicare, address the tax code and look at budget rules to force austerity.
On Tuesday night, an address to a joint session of Congress will focus on the shared sacrifices needed to tame a national debt that is nearing $11 trillion, counting the $4.3 trillion in borrowed funds from Social Security. And on Thursday, Mr. Obama will unveil a budget blueprint that tips his hand on long-term tax, entitlement, energy and health-care policies.
The $533 billion deficit in 2013 will include anticipated costs for his plan to offer near-universal health care. It will also include revenues from a planned greenhouse-gas reduction effort in which businesses will have to purchase permits from the government to emit carbon dioxide and other emissions contributing to global warming. Subsidies for Medicare-managed care plans, known as Medicare Advantage, would be eliminated. Hedge-fund and private-equity managers would see their fees taxed as income, at 35% next year, not at the 15% capital gains rate.
But administration aides say the budget will go to unprecedented lengths to show the true extent of the government's dire fiscal condition. In a break from the budget policies of the Bush administration, the Obama budget will account for future war costs in Iraq and Afghanistan and will show the annual cost of staving off the growth of the alternative minimum tax, a levy imposed in 1969 to ensure the rich pay some taxes but increasingly threatening the middle class. The cost of that AMT "patch" was $70 billion this year.
The budget will also include the cost of staving off cuts to physician reimbursements under Medicare, a budget-cutting measure approved in the 1990s but abrogated by Congress every year. And it will assume about $20 billion for disaster assistance every year, an assumption that has never been done before, although such emergency expenditures have become routine.
Including those will make the budget picture considerably worse, the administration official said. "But we're being honest, to an unprecedented degree," he added. "That is something that is very important personally to the president."
The budget will also show the cost of extending some of the programs in the two-year stimulus plan, such as the $800-per-couple Making Work Pay tax cut. It assumes the extension of the bulk of the Bush tax cuts, such as cuts to all but the top two income tax brackets. The estate tax, which is now scheduled for total repeal in 2010, will instead be preserved and extended permanently at the current levels, with an exemption on the value of estates below $3.5 million -- $7 million for couples – and a tax rate of 45% on the value of estates above that level.
Source: The Wall Street Journal
Even before passage of his $787 billion stimulus plan, the president's budget writers foresaw an inherited deficit of $1.3 trillion, equivalent to 9% of the gross domestic product. With the stimulus and Mr. Obama's proposed housing rescue, the red ink is likely to be well in excess of $1.5 trillion, and possibly as high as $1.9 trillion, according to private forecasts.
Mr. Obama will promise that he can lower that total to $533 billion, or 3% of GDP, by 2013, primarily through savings from withdrawing combat forces from Iraq and allowing George W. Bush's tax cuts for families earning over $250,000 to lapse in 2011.
The forecast for a sharp drop in the deficit will also rest on the assumption that the economy recovers from the current slump before the end of the president's first term. The official declined to say how any additional spending on economic stimulus or bailouts of the financial or other sectors -- actions many economists consider inevitable -- would affect the upbeat deficit projection.
The budget will also detail some of the federal programs Mr. Obama will propose to eliminate or streamline, with more details to come later in the spring, the administration official said.
After unveiling an economic rescue program with a cost likely to exceed a trillion dollars, the president is now eager to emphasize his commitment to fiscal rectitude over the long term. On Monday, the White House convenes a summit on fiscal discipline, to begin tackling the burgeoning costs of entitlements such as Social Security and Medicare, address the tax code and look at budget rules to force austerity.
On Tuesday night, an address to a joint session of Congress will focus on the shared sacrifices needed to tame a national debt that is nearing $11 trillion, counting the $4.3 trillion in borrowed funds from Social Security. And on Thursday, Mr. Obama will unveil a budget blueprint that tips his hand on long-term tax, entitlement, energy and health-care policies.
The $533 billion deficit in 2013 will include anticipated costs for his plan to offer near-universal health care. It will also include revenues from a planned greenhouse-gas reduction effort in which businesses will have to purchase permits from the government to emit carbon dioxide and other emissions contributing to global warming. Subsidies for Medicare-managed care plans, known as Medicare Advantage, would be eliminated. Hedge-fund and private-equity managers would see their fees taxed as income, at 35% next year, not at the 15% capital gains rate.
But administration aides say the budget will go to unprecedented lengths to show the true extent of the government's dire fiscal condition. In a break from the budget policies of the Bush administration, the Obama budget will account for future war costs in Iraq and Afghanistan and will show the annual cost of staving off the growth of the alternative minimum tax, a levy imposed in 1969 to ensure the rich pay some taxes but increasingly threatening the middle class. The cost of that AMT "patch" was $70 billion this year.
The budget will also include the cost of staving off cuts to physician reimbursements under Medicare, a budget-cutting measure approved in the 1990s but abrogated by Congress every year. And it will assume about $20 billion for disaster assistance every year, an assumption that has never been done before, although such emergency expenditures have become routine.
Including those will make the budget picture considerably worse, the administration official said. "But we're being honest, to an unprecedented degree," he added. "That is something that is very important personally to the president."
The budget will also show the cost of extending some of the programs in the two-year stimulus plan, such as the $800-per-couple Making Work Pay tax cut. It assumes the extension of the bulk of the Bush tax cuts, such as cuts to all but the top two income tax brackets. The estate tax, which is now scheduled for total repeal in 2010, will instead be preserved and extended permanently at the current levels, with an exemption on the value of estates below $3.5 million -- $7 million for couples – and a tax rate of 45% on the value of estates above that level.
Source: The Wall Street Journal
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