Sunday, February 1, 2015
By JONATHAN WEISMAN
President Obama will propose a 10-year budget on Monday that stabilizes the federal deficit but does not seek balance, instead focusing on policies to address income inequality as he adds nearly $6 trillion to the debt.
The $4 trillion budget would hit corporations that park profits overseas, raise taxes on the richest of the rich and increase the incomes of the middle class through new spending and tax credits. Mr. Obama will challenge the Republican Congress to answer his emphasis on wage stagnation, according to congressional aides briefed on the details.
The central question Mr. Obama will pose is this: Should Washington worry about what may be the defining economic issue of the era — the rising gap between the rich and everyone else — or should policy makers address a mountain of debt that the White House hopes to control but not reduce?
The president’s budget — thicker than a phone book in multiple volumes — will be just the starting point for that discussion with the newly elected Republican Congress, a document representing Mr. Obama’s aspirations, not the final word. Criticism of the president’s intentions arrived even before the budget was presented.
“We’re six years into the Obama economic policies, and he’s proposing more of the same, more tax increases that kill investment and jobs, and policies which are hardly aspirational,” said Representative Paul D. Ryan of Wisconsin, chairman of the House Ways and Means Committee, in an interview this weekend.
Mr. Obama’s spending-and-taxes plan foresees a $474 billion deficit, which would be 2.5 percent of the gross domestic product, a level most economists see as manageable, according to budget documents obtained by The New York Times. The deficit number would creep up each year, to $687 billion by 2025. But measured against the economy, the deficit would remain stable.
The debt, while growing every year, would remain around 75 percent of the gross domestic product. That is a level higher than at any time in the nation’s history except for World War II and its immediate aftermath.
Those numbers alone will divide Congress on priorities for the last two years of Mr. Obama’s presidency.
Mr. Ryan, in an extended interview, said Republicans are likely to show some caution in their debt-reduction confrontations, and look for common ground with Mr. Obama on an overhaul of the business tax code and on international trade agreements.
Republicans will put forward ideas for controlling the main drivers of the deficit — Social Security and health care programs that are expanding with an aging population — and will propose a budget that does balance. But, Mr. Ryan indicated, they are not likely to force a showdown on entitlements.
“It’s hard to imagine the president is going to want to work with Congress on entitlement reform. He’s been stifling it all along,” Mr. Ryan said. “I see that as an issue that’s going to require a new president.”
The debate will focus instead on policies that can lift middle-class incomes, which have stagnated with a globalized labor force, technology and mechanization.
“The president will make the point that we need strong job growth. We need to invest in our economic future, and that means education, science, research and infrastructure,” said Representative Chris Van Hollen of Maryland, the ranking Democrat on the House Budget Committee. “I actually see us having a great debate in the next few years.”
Mr. Obama’s budget will kick off that debate with particular tax proposals. Among those proposals will be a 14 percent tax on American corporate profits that are kept overseas rather than brought home, and a minimum corporate tax of 19 percent on foreign profits.
The president will also propose a one-time low tax rate for companies that bring profits home from overseas, with much of the proceeds going to fund infrastructure. But that “repatriation holiday” would have to be part of a broader overhaul of the business tax code, the budget will stress.
Mr. Ryan, the House’s lead tax policy writer, embraced that idea as long as it was part of “properly constructed tax reform.”
“It has to be part of a conversion to a permanent system. One time doesn’t work,” Mr. Ryan said.
The president will also propose $105 million for “trade adjustment assistance” — aid to workers dislocated by free trade deals. That provision, opposed by many Republicans as wasteful, is an olive branch to Mr. Obama’s own party members, most of whom have opposed giving him fast-track trade-negotiating powers as he seeks to conclude a broad trade agreement with economic partners on the Pacific Rim, from Chile and Peru to Japan and Vietnam.
Republicans want to work with Mr. Obama on that, but other parts of his budget are sure to be rejected.
For the first time, the budget will lay out in detail the cost of his proposal to make two years of community college free. In the first fiscal year, which begins in October, it would be a modest $41 million, but by 2017 the cost would climb to $951 million, and $2.4 billion by 2018 as more students take advantage of the program, according to a congressional budget aide briefed on the numbers.
Mr. Ryan said Republicans have a more modest higher education agenda. They could work with the Obama administration on efforts to make university costs more transparent, and the payoffs of each college degree more clear.
“The idea of opening a marketplace where people see what things cost and see the results” is a good one, Mr. Ryan said, embracing in theory an effort the Obama administration has already begun, with great difficulty. “It’s a sector that’s used to having automatic rate increases without having to compete for business.”
Mr. Ryan said he also agreed with Mr. Obama that access to the earned income credit — a tax credit to raise the incomes of low-wage workers — should be expanded to childless adults, not just parents.
“I want to focus on steps that are achievable and that’s among them,” he said of an expansion of the earned income credit.
But Mr. Ryan stopped short of the kind of direct wage subsidy that Mr. Obama has proposed with his $500 “second-earner” tax credit, which would go to families with two working parents to help defray child care and other costs.
He also opposed “envy economics,” a hit on Mr. Obama’s proposals to curb tax breaks on huge individual retirement accounts, to raise the capital gains tax and to tax inheritances based on the value of assets when they were purchased, not based on their value when the owner died.
But even as Mr. Ryan criticized proposals that could be viewed as pitting class against class, he acknowledged a reality many Republicans have long avoided: The rich are getting much richer. Republicans once held that liberal economic policies would stifle “the job creators.” Now, Mr. Ryan says, the creators are doing well. Others are not.
“The Obamanomics that we’re practicing now have exacerbated inequality. They’ve exacerbated stagnation. They’re made things worse,” he said. “The wealthy are doing really well. They’re practicing trickle down economics now.”
Simply acknowledging that is an important step, said Pete Wehner, a former domestic policy adviser to President George W. Bush. Middle-class incomes have stagnated in the face of globalization, technological changes and rising health care and higher education costs.
“Republicans have had almost nothing to say about it,” Mr. Wehner said, encouraging Congress to meet the president’s proposals with their own. “The real issue is social and economic mobility, how people can move up the ladder. Sometimes conservatives deny a problem exists because by acknowledging the premise they fear it will lead them to policies they can’t accept.”