Tax Hike Will Fund Health Plan

President Barack Obama’s first budget, which rolls out Thursday, is very much a reflection of him: squeezing the wealthy to help get $2 trillion in 10-year savings, pumping up domestic appropriations faster than defense, and promising a $634 billion down payment toward health care reform.

Hard on the heels of Obama’s speech to Congress, administration officials began briefing lawmakers Wednesday on their proposals including the healthcare reserve fund: half of which would come from health-related expenses and half by scaling back the value of itemized deductions for wealthier taxpayers.

By itself, the $634 billion won’t be enough to finance the president’s ambitious health plans. But it represents a major commitment upfront, with the administration promised to work with lawmakers to find additional savings as legislation is developed this year.

Obama's focus on high-end households is consistent with his larger philosophy — both in taxes and spending.

Within the $2 trillion in savings, for example, the budget is expected to limit agriculture subsidies to farms earning more than $500,000, resulting in an estimated saving near $16 billion. Large charitable deductions—used to shelter income—would face new limits, and Bush-era tax cuts for the wealthy would expire after 2010.

The new healthcare reserve fund is a separate enterprise but with much the same philosophy.

Wealthy individuals, taxed at rates of 35 percent or 33 percent, could still shelter part of their income with large itemized deductions, but these would be treated more as if the taxpayer were in the lower 28 percent tax bracket.

Thus, each $10,000 in deductions — worth about $3,500 for a 35 percent taxpayer today — would be worth closer to $2,800 or 20 percent less.

Formal release of the president’s 2010 budget won’t come until Thursday morning, but it has already set up a scramble in Congress to first complete long-delayed spending bills for the current 2009 fiscal year, which ends Sept. 30.

Given the budget impasse last fall and summer between Democrats and the Bush administration, nine of the 12 annual appropriations bills were never enacted. More than a dozen Cabinet departments have since been dependent on a stop-gap resolution that makes operations difficult and is due to expire March 6.

In a 245-178 vote Wednesday, the House approved a nearly $410 billion omnibus appropriations package to fill this gap and put the government on more permanent footing for the next seven months. Included in the bill is a provision blocking any cost-of-living pay increase for lawmakers this year — given the troubled economy and unemployment at home.

Senate Democrats want to send the package directly on to the White House next week without any changes, but this will require 60 votes and cooperation from at least some Republicans.

“I’m personally hopeful,” Senate Appropriations Committee Chairman Daniel Inouye told POLITICO. But the margin is close, and Democrats were scrambling to appease Sen. Robert Menendez (D., N.J.) angered by several Cuba related provisions in the final package.

The biggest factor is the still tense political climate after enactment of the president’s $787 billion economic recovery plan. “Enough is enough. We have to get a handle on this or we are destroying our economy,” complained California Rep. Jerry Lewis, the top Republican on the House Appropriations Committee. Rep. Jeb Hensarling (R-Texas) accused Democrats of attempting a “trifecta of trillions.”

By Hensarling’s count, this year’s deficit is already over $1 trillion; the full cost of the Obama recovery package plus debt service is another $1 trillion; and now nonemergency appropriations will for the first time also exceed $1 trillion this year.

Democrats countered that much of the deficit is the responsibility of the former Bush adminisration — and that 95 percent of the $410 billion represents funding requested by a Republican White House. And in truth, after all the complaints of high spending, Republicans never exercised their right to offer a procedural motion allowing them to make cuts if they wished.

Most striking — as the numbers get higher — lawmakers seem looser about the facts of the situation. Republican leaders spoke of the bill as a “half-trillion-dollar” measure this week, as if it were OK to simply round up from $410 billion.

The full detail of Obama’s new appropriations requests won’t be available until April. But Thursday’s budget outline appears more robust than some had predicted, with domestic spending outstripping the rate of growth in defense—which will be held to about a 4% to 5% increase.

After the frantic first weeks of this Congress, many lawmakers in both parties just wanted the business of 2009 behind them.

House Appropriations Committee Chairman Dave Obey surely felt that way. And the Wisconsin Democrat delighted most in the fact that Obama used the speech to subtly tweak two Republican governors, South Carolina’s Mark Sanford and Minnesota’s Tim Pawlenty, who have been critical of the administration's economic program.

“There are 57 police officers who are still on the streets of Minneapolis tonight because this plan prevented the layoffs their department was about to make,” the president told Congress on Wednesday — a dig, Obey said, at Pawlenty.

“He has fangs,” the chairman said, grinning broadly. “And that’s a good thing.”

 
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