Budget Plan Has Familiar Ring

February 7, 2012

Wall Street Journal

By LAURA MECKLER

President Barack Obama will release his budget plan next week, calling for $3 trillion in deficit reductions over 10 years, including $1.5 trillion in tax increases to fall mostly on the wealthiest Americans.

If that sounds familiar, it's because the president essentially laid out his budget plan in September, following a failed bipartisan deficit-reduction deal. Mr. Obama's plan for fiscal year 2013, which starts Oct. 1, will mirror the September proposal, senior administration officials said. In presenting his plan, Mr. Obama will argue for new spending in targeted areas, tax cuts to spur manufacturing and new investments in education. He will build on his State of the Union message, saying his plan would foster an "America built to last," aides said.

None of Mr. Obama's major proposals are expected to become law before November's elections, given both partisan divides in Congress over priorities as well as election-year politics. Still, the budget proposal serves as a political document in which Mr. Obama will set out his vision for how he would manage government taxes and spending should he win a second term.

In the months after putting forth his September plan, Mr. Obama shifted his focus to stimulating the economy, rather than deficit reduction, and he continues to emphasize proposals such as a payroll-tax cut that is set to expire at the end of the month and that he wants renewed.

On taxes, about half the $1.5 trillion in revenue comes from ending Bush-era tax cuts for families earning more than $250,000 a year. Much of the rest comes from additional tax increases on families earning over $1 million a year, by taking away popular deductions and mandating a minimum 30% effective tax rate. Mr. Obama would end certain tax breaks for corporations, including breaks for oil and gas companies, as well as benefits for those who use corporate jets.

Mr. Obama's tax proposals for upper-income Americans set the stage for a debate with the Republican presidential nominee. All contenders for the GOP nomination have opposed additional tax revenue, saying it would hurt the fragile economy.

The president will propose cutting spending on Medicare, the federal health program for the elderly, and Medicaid, the joint federal-state program for the poor and disabled. However, he isn't proposing the structural changes that experts say are needed to control spending in these programs over the long term. For instance, Mr. Obama won't suggest raising the Medicare eligibility age, as he was willing to do over the summer during bipartisan budget negotiations that failed to produce a deal. He also doesn't plan to propose changes to Social Security.

Instead, he again will put forward proposals to reduce spending by roughly $248 billion on Medicare and roughly $72 billion on Medicaid. The proposals include higher premiums and deductibles for many beneficiaries and lower payments to drug companies, hospitals and nursing homes.

There's little mystery in the total spending that Mr. Obama will propose for discretionary programs—which are funded annually by Congress—ranging from small grant programs to large weapons systems. The White House and Congress agreed over the summer to caps on discretionary spending—reducing the deficit by about $1 trillion over a decade—and his budget will reflect those limits, officials said.

That means he will propose $686 billion for security spending in fiscal year 2013, a small increase from $684 billion in this fiscal year. And he will propose a total of $362 billion for nonsecurity spending, up from $360 billion this year.

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