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Capitol in Washington December 4, 2014. U.S. President Barack Obama
voiced optimism on Wednesday that a…
President Obama on Monday will unveil a nearly $4 trillion budget for 2016 that would offer financial relief for the middle class, boost investments in areas such as infrastructure and aim to reduce the federal deficit and debt, according to senior administration officials.
Officials said the plan, which will be released to the public at 11:30 a.m., is intended to balance higher investment in government programs and fiscal discipline.
“You don’t need to choose between those two things, you can in fact accomplish both. We believe our budget provides a roadmap for how to do that,” a senior administration official told reporters during a conference call Sunday.
While Republicans advocate fiscal discipline, the overall plan for spending increases and taxes on the wealthy and large financial institutions will almost certainly get rejected by the GOP majority in Congress.
The budget will ask Congress to replace sequestration budget caps that are set to limit discretionary spending starting next October. To reverse those cuts, the budget will request $74 billion more in both spending for domestic programs and the Pentagon, resulting in a total of $530 billion for non-defense and $561 billion for defense.
“We feel that the increased investment in discretionary spending on both the non-defense and defense side are vital for our economic and national security,” a senior official said.
To pay for those spending increases, the budget will propose mandatory spending reductions, closing tax loopholes and limiting tax benefits and immigration reform that reflects the bipartisan bill the Senate passed in 2013.
Of the discretionary spending requests, a major one is a $478 billion six-year surface transportation reauthorization to rebuild roads, bridges and transit. The Highway Trust Fund, which normally funds these projects through the gas tax, is expected to go bankrupt by the end of May and the administration acknowledges it can’t cover the new proposal.
Instead, the budget would impose a one-time mandatory transition tax of 14 percent on about $2 trillion of untaxed earnings U.S. companies have accumulated overseas. About $238 billion of revenue from that tax would supplement the Highway Trust Fund to subsidize the new projects, according to an administration official.
Obama’s second-to-last budget proposal also includes investments in early and higher education, money to counter the Islamic State in Iraq and Syria (ISIS) and Russian aggression toward Ukraine and aid to help Central American countries following last summer’s influx of young immigrants at the southern border.
Officials said it also contains “an ambitious set” of tax proposals that include up to $3,000 for a childcare tax credit, a college tax credit of $2,500, a second-earner tax credit of $500 and an expanded earned income tax credit for workers without children and non-custodial parents.
These proposals would benefit more than 44 million households and provide an average benefit of $600 per household, the Treasury Department estimates.
As Obama outlined in his State of the Union address last month, the budget would generate $320 billion over the next decade by raising the capital gains and dividends rate to 28 percent, which would affect large financial companies and couples making more than $500,000 per year. The hikes would make room for a total of $277 billion in tax breaks for the middle class.
The budget would result in $1.8 trillion in deficit reduction over the next 10 years and stabilize deficits below the 40-year average of 3 percent of gross domestic product (GDP).
In 2016, for example, the budget would bring the deficit down to $474 billion, 2.5 percent of GDP. The deficit last year fell to $483 billion.
Administration officials said debt would fall to 75 percent of GDP in 2016 and even further to 73.3 percent in 2025, much lower than the 79 percent the Congressional Budget Office (CBO) projected would happen last week if current laws remain unchanged.
By the end of 2015, the budget will project real GDP will be 3.1 percent and the unemployment rate will fall to 5.4 percent.
Some of the mandatory spending decreases include a proposal to reduce subsidies in a crop insurance program for farmers, an official said, and initiatives to reduce fraud within the Internal Revenue Service (IRS) and the Social Security Disability Insurance Trust Fund.
Officials said because the budget’s printing deadline occurred before the president decided last week to drop the plan to tax withdrawals from 529 college plans, it does contain it, but the administration won’t pursue it. Republicans and Democrats on Capitol Hill lobbied the White House against the proposal.
Congressional Republicans are expected to declare much of the budget dead on arrival, which they’ve already made clear as details about the tax and spending plans have trickled out. Since the infrastructure proposal, however, would be funded through a corporate tax overhaul, it could speed up negotiations over the tax code in Congress.
The GOP, meanwhile, is expected to introduce a budget blueprint of its own before April 15.
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