By Caren Bohan and Jeff Mason
WASHINGTON (Reuters) - President Barack Obama forecast the biggest U.S. deficit since World War Two in a budget on Thursday that urges a costly overhaul of the healthcare system and would spend billions to arrest the economy's freefall.
An eye-popping $1.75 trillion deficit for the 2009 fiscal year is projected in Obama's first budget. That is equal to 12.3 percent of U.S. gross domestic product -- the largest share since 1945 when the country ran a shortfall of 21.5 percent of GDP.
The budget was scheduled to be released at 11 a.m. EST but the White House released it early after details began to leak out in the news media.
In 2010, the deficit would dip to a still-huge $1.17 trillion, but Obama promised to get the red ink under control within a few years through a combination of tax increases and spending cuts.
"While we must add to our deficits in the short term to provide immediate relief to families and get our economy moving, it is only by restoring fiscal discipline that we can produce sustained growth and shared prosperity," Obama said at the White House.
The proposed $3.55 trillion spending plan for the 2010 fiscal year that begins October 1 provides the broad outlines of a more detailed one to be released in April.
The soaring deficit figure sent U.S. Treasury bond prices lower and yields up to three week highs on Thursday.
Gold prices slid to their lowest level in more than a week, after testing all time highs over $1,000 an ounce earlier this month. Stock prices rose.
The budget requires passage by Congress to take effect.
While Obama, a Democrat, has broad support with both chambers in Congress controlled by his party, he could face a fight as the sticker shock of huge deficits lead to wariness about more spending for goals such as the healthcare overhaul.
FEDERAL SPENDING SOARING
Federal spending is skyrocketing as officials try to jolt the recession-hit economy with public-works spending and tax cuts and bail out the troubled financial industry.
The deficit number reinforced concerns the government will need to sell record amounts of debt to pay for programs aimed at pulling the economy out of a deep recession.
"The budget issue is definitely one for Treasuries because it means greater funding going forward, it means that there is going to be a lot of supply that has to be taken on board by the market," said Orlando Green, fixed income strategist at Calyon in London.
Obama, who took office on January 20, has pledged to slash the deficit he inherited from former Republican President George W. Bush in coming years, bringing it down to $533 billion, or 3 percent of GDP by 2013.
Higher taxes on wealthier Americans and a planned drawdown of U.S. troops from Iraq are expected to help rein in the shortfall.
Obama is seeking an additional $75.5 billion for wars in Iraq and Afghanistan for the rest of the current fiscal year.
He is requesting $130 billion for military operations in the two wars for 2010, which would be down from the roughly $140 billion he expects will be needed this year.
Washington spent about $190 billion on the wars in 2008. Obama looks likely to order U.S. combat troops to withdraw from Iraq over about 18 months, according to U.S. officials. At the same time, he is ramping up the U.S. military effort in Afghanistan.
Obama's budget proposal lays out spending cuts in farm subsidies and other areas to meet the deficit-reduction goal.
But spending would increase to meet key objectives.
The budget sets aside $250 billion as a "placeholder" if Obama decides to ask Congress for more money in the current 2009 fiscal year to help the ailing U.S. financial system. No such decision has been made yet, officials said in a briefing with reporters on Wednesday.
The officials said that if the government were to spend $250 billion to inject money into the banking system, that would finance about $750 billion in asset purchases.
HEALTHCARE OVERHAUL
Meanwhile, Obama has signaled he has no intention of delaying his campaign promise of expanding healthcare to the 46 million people who are uninsured in the United States
The budget includes a 10-year, $634 billion reserve fund to help pay for the president's proposed healthcare reforms.
The budget includes billions in revenues, starting in 2012, from a greenhouse gas emissions trading system, one of Obama's key proposals to fight global warming.
The $1.75 trillion budget deficit forecast for this year reflects shortfalls accumulated under Bush as well as new spending proposals under the $787 billion economic stimulus package the Democratic president signed earlier this month.
While Obama remains highly popular with Americans, his stimulus package and other efforts to revitalize the economy have done little to win over Wall Street.
U.S. stocks prices hit 12-year lows this week.
The United States has experienced 14 months of recession triggered by a financial crisis that has spread across the world. Obama says a big increase in government spending is crucial to avoid economic catastrophe.
Obama's hopes for finding big savings in programs like farm subsidies may prove optimistic. Such programs tend to be popular with lawmakers from states with big agricultural sectors.
(Additional reporting by Jeremy Pelofsky and Emily Kaiser in Washington and Leah Schnurr in New York, editing by Frances Kerry)
http://www.reuters.com/article/busi...Type=RSS&feedName=businessNews&rpc=23&sp=true
Obama's Budget at a glance...
The following are some of the key figures for various departments:
Education
• $46.7 billion in fiscal year 2010 spending
• $500 million spending increase from FY 2009 to FY 2010
• The stimulus package, which is separate from the budget, contains another $81.1 billion for education.
• The budget establishes a new five-year, $2.5 billion program starting in FY 2010 to help low-income students attend college.
• The FY 2010 budget "increases funding for the Charter School program to support the expansion of successful charter school models, while increasing state oversight to monitor and shut down low-performing charter schools."
The government's fiscal year runs from October of one year to September of the next.
Health Care
• A total budget for the Department of Health and Human Services of $76.8 billion. This is down slightly from the $78.4 billion for HHS in FY 2009, but the stimulus package includes another $22.4 billion for HHS-related spending.
• A $634 billion health care reserve fund designed to help cover the costs of overhauling the health care system.
• The reserve fund is referred to as a "down payment on health care reform," and is financed in part by squeezing $316 billion in efficiencies out of the current health care system by "aligning incentives toward quality," "promoting efficiency/accountability," and "encouraging shared responsibility."
• The reserve fund is also financed in part by "rebalancing the tax code so that the wealthiest pay more."
• The budget will require higher-income senior citizens in the Medicare drug program to pay higher premiums. This accounts for a projected $8.1 billion in savings over 10 years.
• $6 billion for cancer research by the National Institutes of Health. This is in addition to the $10 billion provided by the stimulus package for 2009 and 2010.
Energy
• The FY 2010 budget includes $26.3 billion in projected spending for the Energy Department. That figure is virtually the same as FY 2009, aside from $7.5 billion in FY 2009 emergency loans designed in part to help the domestic auto industry comply with stiffer environmental regulations.
• The Energy Department received another $38.7 billion in the stimulus package.
• The FY 2010 budget "builds on the $11 billion provided in the [stimulus package] for smart grid technologies, transmission system expansion and upgrades, and other investments to modernize and enhance the electric transmission infrastructure."
• It "supports and encourages the early commercial development of innovative, clean energy technologies through loan guarantees."
• It supports so-called "clean coal." The document states that the "budget supports Carbon Capture and Storage technology, and along with the $3.4 billion provided in the Recovery Act for low-carbon emission coal power and industrial projects ... will help allow the use of our extensive domestic coal resource while reducing the impacts on climate change."
• It cuts funding for the controversial Yucca Mountain nuclear waste storage program. Funding for the program "will be scaled back ... while the Administration devises a new strategy toward nuclear waste disposal."
Defense
• $533.7 billion for the Department of Defense in FY 2010, an increase of $20.4 billion, or 4 percent, over 2009
• $75.5 billion in spending on Iraq and Afghanistan for the remainder of 2009
• $130 billion in spending on Iraq and Afghanistan for FY 2010
• The budget supports an increase in Army permanent forces to 547,000 and in Marine Corps forces to 202,000 by the end of 2009, two to three years ahead of schedule. The Marines confirmed last week they had reached their target size. iReport.com: What are you cutting from your budget?
Homeland Security
• $42.7 billion in funding for FY 2010, up from $40.1 billion in FY 2009. This is in addition to the $2.8 billion in homeland security funding from the stimulus package.
• $50 million for 15 new TSA "Visual Intermodal Protection Response" teams
• $64 million "to modernize the infrastructure used to vet travelers and workers. These funds will strengthen screening in order to reduce the risk of potential terrorism or other unlawful activities that threaten the nation's transportation system."
• The administration proposes increasing the Aviation Passenger Security Fee beginning in 2012. It says that the current fee covers only 36 percent of the cost of aviation security.
• $1.4 billion for Immigration and Customs Enforcement programs "to ensure that illegal aliens who commit crimes are expeditiously identified and removed from the United States."
• $110 million to expand the E-Verify program, an electronic employment eligibility verification system.
Transportation
• Funding for the Department of Transportation increases by $2 billion in the proposed FY 2010 budget. It climbs from $70.5 billion in FY 2009 to $72.5 billion in FY 2010.
• The Transportation Department received another $48.1 billion in the stimulus package.
• The proposed FY 2010 budget includes a five-year $5 billion high-speed rail state grant program.
This money would come on top of the $8 billion already allocated to high-speed rail in the stimulus package.
The administration envisions the creation of environmentally-friendly "high-speed rail corridors across the country linking regional population centers."
• The proposed FY 2010 budget includes $800 million to upgrade the air traffic control system.
Commerce
• Overall funding for the Commerce Department jumps by $4.5 billion, from $9.3 billion to $13.8 billion -- a more than 50 percent increase. Why? The Census.
Almost all of the increase in funding is dedicated to ensuring the department has "the resources it needs to complete the 2010 Decennial Census effectively, efficiently, and ontime."
• The Commerce Department also received $1 billion in the stimulus package.
Veterans
• Department of Veterans Affairs funding would increase by $5.5 billion under Obama's proposed FY 2010 budget. It would increase from $50.4 billion to $55.9 billion. The VA also received an additional $1.4 billion in the stimulus package.
• Funding for the VA under the FY 2010 budget is projected to increase by $25 billion over the next five years. The budget "expands eligibility for veterans health care to over 500,000 veterans by 2013."
• The proposed FY 2010 budget "expands eligibility for VA health care to non-disabled veterans earning modest incomes ... for the first time since January 2003."
• Under the proposed FY 2010 budget, "for the first time, highly disabled veterans who are medically retired from service will be eligible for concurrent receipt of disability benefits from VA in addition to Department of Defense retirement benefits."
• Under the FY 2010 budget, the Defense Department will add 21 new Warrior in Transition complexes. These complexes provide comprehensive rehabilitative care for wounded veterans. The budget does not indicate the current total number of Warrior in Transition complexes.
• The FY 2010 budget expands mental health screening and treatment services offered by the VA.
Agriculture
• Agriculture Department funding would increase by $1.4 billion under Obama's proposed FY 2010 budget, from $24.6 billion to $26 billion.
The Agriculture Department also received an additional $6.9 billion in the stimulus package.
• Obama's proposed FY 2010 budget "phases out direct payments over three years to farmers with sales revenue of more than $500,000 annually."
The document goes on to state that currently, "direct payments are made to even large producers regardless of crop prices, losses or whether the land is still under production. The program was introduced in the 1996 Farm Bill as a temporary payment scheduled to expire, but was included in the 2002 and 2008 Farm Bills. ... Large farmers are well positioned to replace those payments with alternative sources of income from emerging markets for environmental services, such as carbon sequestration, renewable energy production, and providing clean air, clean water, and wildlife habitat."
• The proposed FY 2010 budget cuts Market Access Program "funding for overseas brand promotion [and] minimizes the benefits that large for-profit entities indirectly gain as members of trade associations who also participate in MAP." It states that an "annual funding reduction of 20 percent will reduce federal spending and place a greater emphasis on promoting generic American products overseas."
• The budget also cuts cotton subsidies. The budget "proposes to eliminate the requirement for the government to pay the storage costs of cotton that is put under loan by the USDA. Cotton is the only commodity for which this assistance is provided."
• The budget provides $1.3 billion in loans and grants to increase rural broadband capacity and improve rural telecommunication service.
• The budget boosts funding for "food safety inspection and assessment and the ability to determine food safety risks."
Obama taxes at a glance
Obama's Budget: Almost $1 Trillion in New Taxes Over Next 10 yrs, Starting 2011
February 26, 2009 12:00 PM
President Obama's budget proposes $989 billion in new taxes over the course of the next 10 years, starting fiscal year 2011, most of which are tax increases on individuals.
1) On people making more than $250,000.
$338 billion - Bush tax cuts expire
$179 billlion - eliminate itemized deduction
$118 billion - capital gains tax hike
Total: $636 billion/10 years
2) Businesses:
$17 billion - Reinstate Superfund taxes
$24 billion - tax carried-interest as income
$5 billion - codify "economic substance doctrine"
$61 billion - repeal LIFO
$210 billion - international enforcement, reform deferral, other tax reform
$4 billion - information reporting for rental payments
$5.3 billion - excise tax on Gulf of Mexico oil and gas
$3.4 billion - repeal expensing of tangible drilling costs
$62 million - repeal deduction for tertiary injectants
$49 million - repeal passive loss exception for working interests in oil and natural gas properties
$13 billion - repeal manufacturing tax deduction for oil and natural gas companies
$1 billion - increase to 7 years geological and geophysical amortization period for independent producers
$882 million - eliminate advanced earned income tax credit
Total: $353 billion/10 years
WSJ Opinion Piece about tax hike for the rich
President Obama has laid out the most ambitious and expensive domestic agenda since LBJ, and now all he has to do is figure out how to pay for it. On Tuesday, he left the impression that we need merely end "tax breaks for the wealthiest 2% of Americans," and he promised that households earning less than $250,000 won't see their taxes increased by "one single dime."
APThis is going to be some trick. Even the most basic inspection of the IRS income tax statistics shows that raising taxes on the salaries, dividends and capital gains of those making more than $250,000 can't possibly raise enough revenue to fund Mr. Obama's new spending ambitions.
Consider the IRS data for 2006, the most recent year that such tax data are available and a good year for the economy and "the wealthiest 2%." Roughly 3.8 million filers had adjusted gross incomes above $200,000 in 2006. (That's about 7% of all returns; the data aren't broken down at the $250,000 point.) These people paid about $522 billion in income taxes, or roughly 62% of all federal individual income receipts. The richest 1% -- about 1.65 million filers making above $388,806 -- paid some $408 billion, or 39.9% of all income tax revenues, while earning about 22% of all reported U.S. income.
Note that federal income taxes are already "progressive" with a 35% top marginal rate, and that Mr. Obama is (so far) proposing to raise it only to 39.6%, plus another two percentage points in hidden deduction phase-outs. He'd also raise capital gains and dividend rates, but those both yield far less revenue than the income tax. These combined increases won't come close to raising the hundreds of billions of dollars in revenue that Mr. Obama is going to need.
The Opinion Journal Widget
Download Opinion Journal's widget and link to the most important editorials and op-eds of the day from your blog or Web page.
But let's not stop at a 42% top rate; as a thought experiment, let's go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That's less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable "dime" of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.
Fast forward to this year (and 2010) when the Wall Street meltdown and recession are going to mean far few taxpayers earning more than $500,000. Profits are plunging, businesses are cutting or eliminating dividends, hedge funds are rolling up, and, most of all, capital nationwide is on strike. Raising taxes now will thus yield far less revenue than it would have in 2006.
Mr. Obama is of course counting on an economic recovery. And he's also assuming along with the new liberal economic consensus that taxes don't matter to growth or job creation. The truth, though, is that they do. Small- and medium-sized businesses are the nation's primary employers, and lower individual tax rates have induced thousands of them to shift from filing under the corporate tax system to the individual system, often as limited liability companies or Subchapter S corporations. The Tax Foundation calculates that merely restoring the higher, Clinton-era tax rates on the top two brackets would hit 45% to 55% of small-business income, depending on how inclusively "small business" is defined. These owners will find a way to declare less taxable income.
The bottom line is that Mr. Obama is selling the country on a 2% illusion. Unwinding the U.S. commitment in Iraq and allowing the Bush tax cuts to expire can't possibly pay for his agenda. Taxes on the not-so-rich will need to rise as well.
On that point, by the way, it's unclear why Mr. Obama thinks his climate-change scheme won't hit all Americans with higher taxes. Selling the right to emit greenhouse gases amounts to a steep new tax on most types of energy and, therefore, on all Americans who use energy. There's a reason that Charlie Rangel's Ways and Means panel, which writes tax law, is holding hearings this week on cap-and-trade regulation.
Mr. Obama is very good at portraying his agenda as nothing more than center-left pragmatism. But pragmatists don't ignore the data. And the reality is that the only way to pay for Mr. Obama's ambitions is to reach ever deeper into the pockets of the American middle class.
http://online.wsj.com/article/SB123561551065378405.html?mod=djemEditorialPage
The Budget takes the first steps towards universal health care...
President Obama is proposing to begin a vast expansion of the U.S. health-care system by creating a $634 billion reserve fund over the next decade, launching an overhaul that most experts project will ultimately cost at least $1 trillion.
The "reserve fund" in the budget proposal being released today is Obama's attempt to demonstrate how the country could extend health insurance to millions more Americans and at the same time begin to control escalating medical bills that threaten the solvency of families, businesses and the government.
Obama aims to make a "very substantial down payment" toward universal coverage by trimming tax breaks for the wealthy and squeezing payments to insurers, hospitals, doctors and drug manufacturers, a senior administration official said yesterday.
Embedded in the budget figures are key policy changes that the administration argues would improve the quality of care and bring much-needed efficiency to a health system that costs $2.3 trillion a year.
By first identifying a large pot of money to underwrite health-care reform -- before laying out a proposal on who would be covered or how -- Obama hopes to draw Congress to the bargaining table to tackle the details of a comprehensive plan. The strategy is largely intended to avoid the mistakes of the Clinton administration, which crafted an extensive proposal in secret for many months before delivering the finished product to lawmakers, who quickly rejected it.
"We aim to get to universal coverage," administration budget aide Keith Fontenot told health-care activists last night. Obama is "open to any ideas people want to put forward. He wants to work openly with the Congress in a very inclusive process."
Virtually every major player in the health-care sector will find something to object to in Obama's plan, an intentional decision made in the hope that "a little bit of pain" will be offset by the appeal of insuring millions more people, said one White House adviser.
About half the money for the new fund would come by capping itemized tax deductions for Americans in the top income bracket. The proposal, which administration officials characterize as a "shared-responsibility issue," would reduce the value of tax deductions for families earning more than $250,000 by about 20 percent, according to administration documents.
Nearly one-third of the money would be generated by eliminating subsidies that the government pays insurers that sell Medicare managed-care plans. Instead, the Medicare Advantage plans would be put under a competitive bidding process, for a savings of $175 billion over the next decade.
"The administration believes it's time to stop this waste," according to the documents.
Even before the budget proposal became public, the Obama team began selling it to groups that will be central to the upcoming debate. Top lawmakers were brought to the White House for briefings, while constituency groups heard the highlights in an evening conference call yesterday.
"This is the first step towards getting health-care reform done this year," White House domestic policy adviser Melody C. Barnes told allies in one call. "We can't underestimate the importance of rallying around this budget. It serves as a footprint for something bigger."
During the campaign, Obama promised to reduce the number of uninsured Americans, improve the quality of care and save the typical family $2,500 a year in medical costs.
"We know that this is not enough to achieve our overall goal of getting health care for every American, but it is a significant down payment," Neera Tanden, a top Obama health adviser, said during a conference call.
Given the economic crisis and the soaring federal deficit, many had begun to fear that health reform would be postponed, said Drew Altman, president of the nonprofit Kaiser Family Foundation.
"What this does is, it allows the train to move forward," he said. "But there are still big issues to work out about how to reform health care and how to come up with the rest of the money."
Many of the targeted savings are familiar and controversial.
If the tax-deduction cap is enacted, it is likely to hit many small businesses, said House Republican Leader John A. Boehner (Ohio).
"Everyone agrees that all Americans deserve access to affordable health care," he said, "but is increasing taxes during an economic recession, especially on small businesses, the right way to accomplish that goal?"
If the budget is approved by Congress, drug companies will be required to increase the rebate they pay on medications sold to Medicaid patients from 15 percent to 21 percent. The proposal, which would raise $19.5 billion over 10 years, is likely to spark strong opposition from the industry, which has argued that the current rebate cuts into profits.
Wealthy senior citizens would also be asked to pay higher premiums for Medicare drug coverage, similar to the higher premiums they now pay for physician visits, according to the Obama blueprint.
The budget figures also represent significant shifts in how the United States will pay for medical care.
For example, experts have identified hospital readmissions -- especially for elderly patients -- as a sign of poor care and unnecessary expense. About 18 percent of Medicare patients are readmitted to the hospital within 30 days of an original visit. The new approach would establish flat fees for the first hospitalization and 30 days of follow-up, sometimes done by separate facilities. Hospitals or clinics with high readmission rates could be paid less.
Obama, who is set to host a White House summit on health reform next week, has argued that reining in health spending is critical to the nation's long-term fiscal outlook.
Medicare and Medicaid, the government's two primary safety-net health programs, currently consume 5 percent of the gross domestic product, or $660 billion a year. At their current growth rates, absent restructuring, the two programs will equal 12 percent of the GDP by 2050.
Health-care costs are "one of the major reasons why small businesses close their doors and corporations ship jobs overseas," Obama said in a speech to Congress on Tuesday night.
"This is a cost that now causes a bankruptcy in America every 30 seconds. By the end of the year, it could cause 1.5 million Americans to lose their homes," he said. ". . . Given these facts, we can no longer afford to put health-care reform on hold."
Meanwhile, Congress is up to their old shenanigans.
WASHINGTON - Congress went on a pork-a-palooza yesterday, approving a massive spending bill with big bucks for Hawaiian canoe trips, research into pig smells, and tattoo removal - all while the nation faces an economic crisis.
Among the recipients of federal largesse is the Polynesian Voyaging Society of Honolulu, which got a $238,000 "earmark" in the bill.
EDITORIAL: OBAMA'S FUZZY TAX MATH
The group organizes sea voyages in ancient-style sailing canoes like the ones that first brought settlers to Hawaii.
The sailing club has a powerful wind at its back in the person of Sen. Daniel Inouye (D-Hawaii), the chairman of the Senate Appropriations Committee.
The bill also has a whopping 8 percent increase over last year for the numerous federal agencies it funds.
New York got its share of earmarks, among them $475,000 to "improve and expand" the Italian American Museum in Little Italy.
The project was pushed by New York Reps. Gary Ackerman and Jerrold Nadler. The latter touted it, among other earmarks, on his Web site.
Nadler also announced $4.5 million for new park development in Manhattan.
Uncle Sam's generosity extends upstate, where there's $950,000 to convert a railroad bridge over the Hudson River into a walkway in Poughkeepsie.
Earmarks totaled at least $3.8 billion - a figure used by the House Appropriations Committee.
But the watchdog group Taxpayers for Common Sense calculates that there are an astonishing 8,570 earmarks at a cost of $7.7 billion.
The bill, which critics slammed as larded with pork, has big bucks to combat putrid stenches in the heartland, with $1.7 million for "Swine Odor and Manure Management Research."
That's on top of $1.9 million in each of the last two years, or nearly $6 million over the last three years.
The swine research center, at Iowa State University in Ames, got funds through the Agricultural Research Service, and aims to improve the smell of animals and the lagoons where waste is stored.
There's funding for mosquito trapping in Gainesville, Fla. - requested by Rep. Rosa DeLauro of Connecticut. The research deals with the West Nile virus, and was funded at $1.2 million in each of the last two years.
The House packaged the bill from several spending measures held over from last year. It needs to pass the Senate and be signed into law by President Obama.
Republican Sen. John McCain of Arizona, whom Obama vanquished in November, is calling on the president to veto it.
But Democratic leaders say the spending spree was a bipartisan affair, with up to 40 percent of the earmarks coming from Republicans.
Obama has criticized earmarks and insisted they be kept out of stimulus legislation - a suggestion that drew laughs from Republicans at the president's address to Congress Tuesday night.
Another earmark, by Rep. Howard Berman (D-Calif.) provides $200,000 for a "tattoo-removal violence-outreach program" in Los Angeles.
The funds would buy a tattoo-removal machine to help gang members erase signs of their past.
Meanwhile, Obama is set to unveil a proposal today that sets aside $634 billion over the next 10 years for health-care reform.
He plans to pay for it, in part, by capping tax deductions for families that earn more than $250,000 a year.
http://www.nypost.com/seven/0226200...ss_porky_pols_pig_out_on_fine_wine_157027.htm
Well, thoughts? I've never been a big fan of income tax increases (I prefer consumer tax increases, if there are increases at all). $1.75 Trillion deficit is mind boggling, luckily for Obama he gets a free pass as most people will place the blame on Bush.
Last edited by a moderator:
. It's the right solution and I don't care whether or not you know it.
I might be crazy, but in my simple mind, that doesn't seem like it will wok... 