Obama’s Proposes Up to $750 Billion More for Bank Aid
This article was originally posted on Bloomberg
President Barack Obama’s first budget request would provide as much as $750 billion in new aid to the financial industry, as well as overhaul the U.S. health-care system and launch a program to cut carbon-dioxide emissions.
The spending blueprint, being sent to Congress today, anticipates the government will run a deficit totaling $1.75 trillion in the year ending Sept. 30, equivalent to about 12 percent of the nation’s gross domestic product. Obama has promised to cut the shortfall — the biggest since World War II – – in half by the end of his first term.
“It’s only by restoring fiscal discipline” that the U.S. can produce growth and prosperity “over the long run,” Obama said during remarks this morning. “That means cutting what we don’t need” to pay for necessary programs.
Obama pledged that his administration will “go through our books page by page, line by line” to cut wasteful or inefficient spending, and said officials have already found $2 trillion in deficit reduction.
A senior administration official, in a briefing yesterday with reporters, declined to say how large the White House forecasts the fiscal year 2010 deficit will be or provide the total budget figure. The full budget document is set for release at 11 a.m. Washington time.
The administration proposes to finance the budget in part by limiting tax deductions for couples earning more than $250,000 a year, raising taxes on hedge-fund managers, cutting defense spending and paring subsidies to insurance companies participating in the government’s Medicare health-care system.
More Details Later
More details will come in the 134-page overview the administration plans to release later outlining budget priorities for the 2010 fiscal year, which begins Oct. 1. The administration official, noting Obama has only been in office for little more than a month, said the White House doesn’t plan to release a full, detailed budget until April.
The official, speaking on condition of anonymity, said the White House hasn’t decided whether the $750 billion in additional aid to the financial industry will be needed. He said it will be put in the budget as a “placeholder.”
The official said the aid would appear in the budget as about $250 billion because the rules require policy makers to record the plan’s net cost to taxpayers. The government anticipates it would eventually recoup some, though not all, of the money expended to help financial companies.
The funds would come on top of the $700 billion rescue package approved last October by Congress.
The official said the White House is asking for a “down payment” of about $635 billion to begin overhauling the nation’s health-care system, which Obama has said is critical to expanding health-insurance coverage and getting the government’s fiscal house in order.
Tax Deduction Limits
The fund would be financed in part by the limits on tax deductions for those earning more than $250,000 a year and by requiring insurance companies participating in the Medicare Advantage program to enter into competitive bidding.
The budget proposes raising taxes on hedge-fund managers by eliminating the so-called carried interest tax loophole that allows investment managers to pay 15 percent tax rates on their compensation rather than the usual income tax rates. The spending plan would also raise taxes on corporate income earned overseas and crack down on business transactions that are solely designed to reduce companies’ tax bills.
The budget would eliminate the Advance Earned Income Tax Credit, a tax break for low-income earners that government officials have said is poorly administrated.
The spending plan assumes the government would begin taking in at least $75 billion in 2012 from a cap-and-trade system that requires companies to buy credits if they exceed greenhouse-gas limits. That money would be used to invest in clean-energy technology and also help offset higher energy costs for lower-and middle-income Americans, according to officials who spoke on condition of anonymity.
On defense, the administration will request an additional $75 billion this year for Iraq and Afghanistan war costs, bringing the total annual spending on the conflicts to more than $140 billion. The budget assumes those costs will decline to about $130 billion in 2010 and $50 billion in subsequent years.
The administration official said Obama plans to pursue deficit reduction by cutting spending on defense, an area with “significant” opportunities for savings. Agriculture subsidies also are targeted for reductions, with the administration pushing to phase out payments to farmers earning more than $500,000 annually.
While the federal government has taken over Fannie Mae and Freddie Mac, the Obama administration opted to exclude most of the costs of running the mortgage financiers in its budget plan. The blueprint includes the money the Treasury Department has injected into the companies so far, the official said.