Obama: 2013 budget reflects "tough choices"

President Obama's 2013 budget blends short-term stimulus spending aimed at boosting job-creation with longer term measures seeking to gradually balance the nation's books.

Speaking at Northern Virginia Community College in Annondale, Va., Obama echoed many of the themes that have featured in his recent speeches, including the need for all Americans to contribute their "fair share" and to play by the rules. "We've got to renew the American values of fair play and shared responsibility," he said.

Obama also said he is making "tough choices" in cutting government spending in order to put the country on a sustainable economic path. Yet he warned that excessively large cutbacks would threaten the recovery, which he said is gaining strength. "The last thing we need is for Washington to stand in the way of America's comeback," he said in urging lawmakers to approve a two percent cut in payroll taxes. "Congress needs to stop taxes from going up on 160 million Americans," he added.

The budget for the government's next fiscal year, which takes effect Oct. 1, would shrink the deficit by $4 trillion over the next 10 years by cutting federal spending and by raising taxes on people earning at least $250,000 per year. For 2013, the White House projects a deficit of $901 billion, or 5.5 percent of GDP. That figure is down from an estimated $1.33 trillion in fiscal-year 2012, 8.5 percent of GDP. The goal is to reduce the budget gap to 2.7 percent percent of GDP, or $575 billion, by 2018.

The plan calls for deficit reduction to be achieved chiefly by slashing government expenditures. Obama is proposing $2.50 in spending cuts for every $1 dollar the government would raise in revenue by raising taxes on high income-earners and from eliminating corporate tax breaks. Discretionary spending, annual government outlays approved by Congress on everything from health research and pollution control to education and child care, is slated to decline from 8.7 percent of GDP in 2011 to 5 percent in 2022. As part of these cuts backs, the defense budget would decrease $487 billion.

Mandatory spending programs -- those authorized by law, rather than set by Congress every year -- also would take a hit. More than $360 billion in savings would come from trimming Medicare, Medicaid, and other health programs over 10 years, mostly by reducing payments to health care providers.

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The tax measures included in the budget have long been on Obama's wishlist. He is pushing to let tax cuts for wealthier Americans enacted under President George W. Bush lapse, as scheduled, by year-end. Also on the agenda is the so-called Buffett rule, named after investor Warren Buffett, under which any U.S. household with annual income of more than $1 million would pay a minimum federal tax rate of 30 percent. These changes to the tax code would increase tax revenue by $1.5 trillion over 10 years, according to the White House.

"That's not class warfare, that's common sense, " Obama said in rejecting criticism that his tax proposals are unfair to wealthier Americans.

One new source of revenue envisioned under the president's budget -- a "financial crisis responsibility fee" levied on big banks that would raise $61 billion over 10 years. The charge is aimed at repaying taxpayers for bailing out large financial firms in 2008 and 2009.

To boost employment starting this year, Obama is asking for roughly $350 billion to extend and expand the payroll tax cut and to continue unemployment benefits through the end of the year. Part of that funding also would go toward rebuilding the nation's roads, railways, and airport runways; renovating schools; and helping states and municipalities hire and retain teachers and emergency personnel.

  • Alain Sherter On Twitter»

    Alain Sherter is an award-winning business journalist who has written for The Deal, MarketWatch and Thomson Financial Media.

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