By Erik Wasson - 03/05/14 06:00 AM EST
President Obama’s $3.9 trillion budget has less chance than usual of being enacted by Congress given that appropriators have agreed to a top-line number for spending bills.
Nonetheless, the budget carries weight as a statement of Obama’s policy vision and could have repercussions for both the midterm elections and for legislation down the line.
There is little in the document to anger the most strident liberals in Congress, who succeeded in pressuring Obama to drop a proposal to change the way inflation is calculated for Social Security and other federal benefits.
The budget also contains significant tax increases on the wealthy, tax cuts for the working class and $56 billion in increased spending above the 2015 budget cap.
“At a time when the wealthiest Americans are doing phenomenally well, it asks some of the richest people in the country to start paying their fair share of taxes,” said liberal Sen. Bernie Sanders (I-Vt.).
The budget could help Republicans command the mantle of fiscal restraint.
Obama in the document downplays attempts to reduce the deficit in order to call for increased spending on jobs programs and infrastructure.
While the projects are fully paid for, conservatives argue the tax increase and other savings would be better used to reduce red ink. They point out that, despite $1.8 trillion in increased tax revenue, some $7 trillion is still added to the gross national debt over 10 years under the plan.
The Internal Revenue Service
If Obama’s budget were enacted, the embattled IRS would see a funding increase to the tune of $12.5 billion, compared to the $11.3 billion the agency is receiving now.
Republicans are in no mood to increase the agency’s funding after it admitted to singling out conservative groups applying for tax-exempt status.
The budget proposes doubling the Earned Income Tax Credit for childless workers to $1,000 and expanding it to younger and older workers. The budget has other new childcare and education tax breaks that would total $40 billion over 10 years.
Compared to the funding levels under sequestration, the Defense Department is a winner. It gets $28 billion more in base funding in 2015 and $79.4 billion in war funding, even though Obama has called for all combat troops to be out of Afghanistan by January. In the past, the Pentagon has been able to shift training and other costs into the war fund.
The defense industry wants higher spending and on Tuesday, cited the Ukraine crisis as a reason why.
Climate change advocates
The 2015 budget proposes a new $1 billion climate resilience fund to help communities prepare for extreme weather caused by climate change.
Environmentalists have cheered the fund, which would focus on research to gather data on the impact of climate change while supporting innovative technologies and infrastructure to help the country deal with it.
Transportation advocates were delighted to find that Obama’s budget includes $302 billion for a four-year surface transportation reauthorization bill. The budget designates $150 billion in revenue from corporate tax reform to be used for the spending.
Hopes for a deficit grand bargain dimmed when Obama removed Social Security cuts from this year’s budget, one of the few politically daring proposals in his last blueprint.
The budget goes after tax loopholes that have come under criticism but uses the savings to increase spending above budget caps put in place by the December budget deal. While the deficit is projected to be $434 billion in 2024 — compared to $680 billion in 2013 — that number can be expected to increase in later years as more baby boomers retire.
“This again confirms that the president and Congress are unwilling to make hard choices and address the fundamental drivers of deficits and debts in years ahead,” said Steve Bell of the Bipartisan Policy Center.
Oil and gas industry
The Obama administration again hits the oil and gas industry with tax hikes in its budget request. The total hike amounts to $97 billion and includes repealing “Last-In, First-Out” accounting, taxes on offshore production and a tax on oil spills.
Obama’s budget finds $650 billion in revenue from ending two tax breaks mostly used by the wealthy.
One applies to Subchapter S corporations, which was made famous by failed presidential candidate John Edwards. The provisions allow professionals, such as attorneys, to avoid paying Medicare payroll taxes on their earnings.
The other break singled out for elimination is on carried interest and allows private investment managers to pay a 20 percent rate plus a 3.8 percent surtax on earnings rather than the top marginal rate of 39.6 percent.
Military and civilian federal workers
Federal workers get a 1 percent pay increase under the budget but argue their buying power is being eroded by inflation.
Active and retired military members would also take a hit under the plan. Pay raises would be capped an additional year at 1 percent. General and flag officers would see no pay raise at all, and healthcare fees would increase for some retired soldiers and sailors. Off-base housing allowances would decrease, and service members and their families would have to pay higher prices at military commissaries.
Wall Street regulators
The Commodity Futures Trading Commission, a tiny Wall Street regulator given the big job of regulating the derivatives market, received less love from the White House in the 2015 proposal.
Obama has consistently pushed Congress to give financial regulators more funds as they implement the Dodd-Frank financial reform law. But he applied less pressure this time around, calling for a 30 percent boost to $280 million, compared with last year’s proposed increase to $315 million.
The budget revives a plan from last year to charge a 94-cents-per-pack surtax on tobacco. The tax, indexed to inflation, would generate $78 billion in revenue over 10 years.
Peter Schroeder, Keith Laing, Laura Barron-Lopez, Elise Viebeck and Kristina Wong contributed.