By Erik Wasson - 04/10/13 04:06 PM EDT
President Obama released a 2014 budget on Wednesday that would leave the nation with a $744 billion budget deficit despite new entitlement cuts and tax hikes.
The $1.058 trillion budget for fiscal year 2014 — which arrived on Capitol Hill about two months late — includes $3.77 trillion in total spending, including entitlements.
It would add $5.3 trillion in new deficit spending over 10 years and increase spending in 2014 by $160 billion compared to current law.
The budget would turn off the automatic spending cuts known as the sequester and raise about $1 trillion in new tax revenue over 10 years compared to the Congressional Budget Office's baseline.
For the first time, Obama’s budget counts revenue from a “Buffett Rule” requiring that households with annual income more than $1 million pay at least a 30 percent tax rate after charitable deductions. The rule is named after investor Warren Buffett and was only a suggestion in the last Obama budget.
The budget would cut entitlement spending and raise revenue by $230 billion by adopting a new formula known as "chained consumer price index" that would more slowly increase benefits for Social Security and other programs for inflation.
Unlike the House Republican budget, Obama’s budget would not balance, though it would reduce the deficit as a percentage of gross domestic product to 1.7 percent by 2023. The deficit was 7 percent of GDP in 2012 and is projected to be 5.3 percent at the end of 2013 by the Congressional Budget Office.
In a statement Wednesday from the Rose Garden, Obama said the main goal of his proposal was to "reignite the true engine of the economy" — the middle class. He argued his budget could lead to stronger economic growth and more jobs while also reducing the deficit.
"This budget answers that argument because we can do both," Obama said of growing the economy while shrinking the deficit. "These are not conflicting ideas. We can do them in concert ... nothing shrinks deficits faster than a growing economy."
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Administration officials discussing the budget Tuesday evening ahead of its formal release on Wednesday positioned it as a compromise effort between the demands of Democrats and Republicans.
The budget from Senate Democrats would raise $975 billion in new taxes — more than Obama’s blueprint — and leaves the nation with a $693 billion budget deficit in 2014.
The White House also cast it as closer to a final position and not a step in negotiations on a deficit-reduction deal with Republicans.
“We don’t view this as a starting point in the negotiations,” a senior administration official said. “The president has gone more than half way."
The House Republican budget would balance in eight years by cutting spending much more aggressively than Obama or Senate Democrats. The House GOP budget also proposes lower tax rates.
The author of the House GOP budget, Rep. Paul Ryan (R-Wis.), said Wednesday he expected Obama to propose a "status quo" budget based on what had leaked out of the administration so far. To break the status quo, Ryan said Obama needed to embrace "real entitlement reform."
Ryan's comments echo criticism from Speaker John Boehner (R-Ohio) on Obama's chained consumer price index proposal, which the left has said is a step too far by the president.
Some Republican centrists have praised Obama for taking on his own party on the issue, however.
Obama is meeting Wednesday night with a dozen Senate Republicans. A focus of the meeting is expected to be a possible deficit-reduction deal that might be coupled with a hike to the debt ceiling this summer.
“The president is looking for a caucus of common sense,” the official said. “There are people on the Republican side, in the Senate at least, that give you hope that there is a path to a deal.
“Are Republicans going to be willing to come to us?” the official said. “If they refuse to include any revenues in a deal, then there will be no deal.”
Obama has been encouraged by his talks so far with Senate Republicans, the administration official said. In addition to Wednesday’s dinner, Obama dined with a dozen Senate Republicans at Washington’s Jefferson Hotel in March.
Obama’s budget includes $100 billion in new defense cuts, $100 billion in nondefense agency cuts, $200 billion in cuts to mandatory spending, such as farm subsidies and federal worker benefits, and $400 billion in healthcare savings.
It counts $210 billion in savings from reduced interest payments, and the White House says it would constitute $1.8 trillion in deficit reduction over 10 years.
However, the baseline the administration uses to calculate that figure assumes the sequester was never started. If the sequester is included in the baseline, the Obama budget would only reduce the deficit by about $600 billion over 10 years.
The budget contains several new “investments” in new spending on education and other priorities, though administration officials insisted these expenses would be offset with new spending cuts and tax hikes, including a new tobacco tax.
The budget's $400 billion in cuts to healthcare spending are about $125 billion more in cuts than the Senate has backed. Officials say $270 billion of the savings comes from Medicare.
The White House is no longer backing $100 billion in Medicaid cost shifting to the states since the Supreme Court last summer made expansion of Medicaid by the states optional, an official said.
To raise $580 billion in revenue, the budget limits the value of tax deductions and other tax benefits for the top 2 percent of families to 28 percent of taxable income.
The budget continues to call for revenue neutral corporate tax reform as part of an overall revenue raising tax-reform package, officials said. But if such a package cannot be achieved, the budget proposed selectively closing some “egregious” loopholes, such as for corporate jet purchases, for oil and gas companies and for carried interest, to raise revenue.
As part of the stimulus, the budget proposes permanent research and development tax breaks and renewable energy tax credits.
It proposes a 10 percent tax credit to help small business with hiring and makes permanent the American Opportunity Tax Credit that benefits college students and expands the Earned Income Tax Credit and Child Tax Credit.
Sam Baker contributed to this story.
This story was posted at 6 a.m. and updated at 12:06 p.m.