Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Newsletter Article


Health Care, Taxes Will Test Obama Budget Plan

By Joseph J. Schatz and David Clarke, CQ Staff

February 26, 2009 –- President Obama sent Congress a $3.6 trillion budget Thursday that proposes costly efforts to expand health care coverage, address global climate change, and also rein in swelling deficits.

The proposal, which projects a $1.17 trillion deficit in 2010, will immediately test the limits of the new political dynamic on Capitol Hill in the midst of a recession.

To help pay for his priorities, Obama is proposing a tax hike on affluent Americans after nearly a decade of tax-cutting under the Bush administration. In addition, he proposes selling carbon emission credits to polluters as part of a cap-and-trade system to combat global warming, and asks Congress to squeeze savings from Medicare and Medicaid, as well as a variety of other programs.

The budget outline also includes a $250 billion placeholder for further efforts to address the banking crisis on Wall Street, even as the administration begins to use the second half of the $700 billion bailout enacted late last year (PL 110-343). The placeholder funding would support $750 billion in asset purchases, according to the administration.

The budget comes as the economy is in a deep recession and attempts to revive it are driving the agenda in Washington.

"While we must add to our deficits in the short term to provide immediate relief to families and get our economy moving, it is only by restoring fiscal discipline over the long run that we can produce sustained growth and shared prosperity," Obama said at the White House.

The budget calls for creation of a "reserve fund" of $634 billion over 10 years to cover a health care expansion. But it provides no details about what this overhaul would look like. It does, however, say that $316 billion of the cost would be covered by savings from Medicare and Medicaid programs, such as reducing Medicare overpayments, prescription drug prices, and hospital readmissions.

The remainder would come from a tax hike on the wealthy, including putting a cap on their tax deductions. That is sure to draw fire from Republicans, who argue taxes should not be raised on anyone during a recession.

The budget also assumes that legislation enacting a cap-and-trade system aimed at reducing carbon emissions would bring in $645.7 billion over 10 years.

The budget proposes dedicating $120 billion of that to renewable energy programs, with rest being used to making permanent the "Make Work Pay" tax provision in the recently enacted economic stimulus or recovery bill (PL 111-5) at a cost of $536.8 billion. The idea is that extending this tax reduction for most working families would help offset increased energy costs resulting from the cap and trade program.

The budget also would expand the earned income tax credit at a cost of $32.9 billion.

Declining Deficits Projected

Obama has promised to cut the deficit in half by fiscal 2013. His budget shows the deficit soaring this year before falling quickly. The fiscal 2009 deficit will be $1.8 trillion, according to the budget, easing to $1.2 trillion in fiscal 2010 and $533 billion in fiscal 2013.

One reason for the steep decrease: the fiscal 2009 and 2010 deficits include costs that are not expected to recur, such as this year's stimulus package and last year's financial rescue plan. The administration is also assuming the economy will grow faster next year than other forecasters expect.

While Obama plans a different approach to Iraq and Afghanistan than President George W. Bush, his budget shows the military operations there are still costly.

He is requesting an additional $75.5 billion in fiscal 2009 for war costs and then $130 billion in fiscal 2010. The budget includes a $50 billion per year placeholder figure for war operations through fiscal 2019. In total, the budget includes $580 billion over 10 years for what it describes as "overseas contingency operations."

To help pay for the health care reserve fund, Obama proposes to increase taxes on upper-income earners by capping at 28 percent the tax rate at which taxpayers can take itemized deductions – a tax hike that would raise $318 billion.

Obama would let the 2001 and 2003 tax cuts for upper-income Americans lapse in 2010, raising $636.7 billion over ten years.

The Obama budget also takes a large swing at so-called corporate tax loopholes, including $353.5 billion in revenue-raisers and tax hikes aimed at groups ranging from oil companies to hedge fund managers.

Senate Budget Committee Chairman Kent Conrad, D-N.D., called the budget proposal "a good beginning," but said, "The greatest concern that I have is the buildup of debt in this budget. The president has acknowledged that we need to do more. I believe we do."

The proposal drew immediate fire from the top Republican on the Ways and Means Committee, Dave Camp of Michigan, in a sign that Republicans will stringently oppose the proposed tax increase.

"This budget taxes 100 percent of Americans, not just the wealthiest 2 percent," he said in a statement.

"The hidden taxes within the president's budget on energy alone are staggering and will fall directly on every American worker and family," he warned.

"These new taxes will drive up the cost of everything from your utility bills to your grocery bill. Worse yet, the small business and investment tax hikes will increase the cost of staying in business and creating new jobs," Camp said. "Those taxes will in turn be passed on to consumers. These tax hikes may be the worst direction we could head in during a recession."

- Bart Jansen contributed to this story.

Publication Details