Obama submits $4 trillion budget request to Congress

The president’s calls for increasing federal spending and raising taxes on the wealthy and corporations faced immediate disapproval from Republicans, who control both chambers of Congress for the first time during his time in office. Nevertheless, they chart a new course for liberals worried about inequality in a time of skepticism about government spending and debt.

The budget would push federal spending to $3.99 trillion in 2016 and would see the federal debt rise by $5.6 trillion over 10 years.

Obama’s tax and spending plans would lower annual deficits in the short run as the economy continues to recover, driving the federal shortfall down from $583 billion this year to $474 billion in fiscal 2016. That would be the smallest deficit of Obama’s tenure, following the $483 billion deficit in 2014.

Although the budget would not balance in Obama’s budget, it would reach primary balance in 2022, meaning that revenues would exceed spending, setting aside the interest payments on the debt. Net interest payments would total $649 billion or 2.7 percent of GDP that year, and would grow in subsequent years.

Total federal debt held by the public would eclipse $20 trillion in 2025 under the president’s plans, but it would remain stable as a share of the U.S. economy, falling from 74 percent of gross domestic product today to just over 73 percent in 2025. The annual deficit would not rise above 3 percent of GDP during the budget window.

Those projections rest on the assumption that growth in the gross domestic product will accelerate to 3.1 percent this year and 3 percent in 2016 before slowing to 2.3 percent over the long term. Economic growth was 2.4 percent for 2014, according to a preliminary report from the Department of Commerce.

Those growth assumptions are rosier that the projections from the the nonpartisan Congressional Budget Office released last week. The CBO projected real GDP growth to reach 2.9 percent in 2015 and 2016 before slowing to 2.1 percent over the rest of the decade.

The White House proposal would left the spending caps imposed after a long and bruising series of negotiations between Obama and congressional Republicans over the past four years, increasing domestic spending by $37 billion to accomodate initiatives such as community college and other Obama administration priorities. It also would spend an extra $38 billion on defense spending to respond to the threat of the Islamic State of Iraq and Syria and Russian aggression in eastern Ukraine. Total discretionary defense spending would be $561 billion for 2016, and domestic discretionary spending would be $526 billion.

Instead, Obama would seek to reduce deficits by $1.8 trillion total over 10 years by reducing spending on government healthcare programs, passing immigration reform and imposing a one-time tax on foreign earnings of U.S. companies.

With the budget, Obama seeks to provide policy remedies to the strains facing working families trying to attain a middle-class standard of living. Those include programs to boost preschool availability and boosting funding for low-income schools by $1 billion. The budget also includes the proposal for making two years of community college cost-free to students, which Obama highlighted in his State of the Union address.

At the heart of the president’s self-described “middle-class economics” agenda are tax credits to ease the tax burden on financially strained families, offset by added government revenues from wealthy families and from profits held by corporations overseas.

Among the tax measures are a tripling of the current credit for child care, expanded refundable credits for poor workers and a consolidation and expansion of college tax credits that the White House said would cut taxes for 8.5 million families.

A major revenue-raiser to pay for those cuts would be a 14 percent mandatory tax on revenues held by U.S. companies overseas.

Large U.S.-headquartered multinational firms face steep corporate taxes on foreign earnings, but only when those profits are repatriated to the U.S. As a result, Russell 1000 companies have more than $2 trillion in earnings held offshore, according to the research firm Audit Analytics, led by corporate giants such as General Electric, Microsoft and Pfizer.

Obama’s one-time tax on those earnings, combined with a 19 percent rate on foreign earnings in the future, would raise more than half a billion dollars, most of which would be used for spending on roads, bridges, ports and other infrastructure.

Yet the president’s tax proposals, the broad outlines of which were previewed in the State of the Union and leaked in the days leading up to the budget release, already earned criticism from Republicans hoping to use their unified control of Congress to set an agenda more focused on lowering taxes and shrinking the impact of federal regulations.

“Today President Obama laid out a plan for more taxes, more spending, and more of the Washington gridlock that has failed middle-class families,” said House Speaker John Boehner in a response to the budget submission.

Boehner faulted the Obama budget for not balancing, and said that Republicans “will address our government’s spending problem and protect our national security. Our budget will balance, and it will help promote job creation and higher wages, not more government bureaucracy.”

Rep. Paul Ryan, R-Wis., the head of the House’s tax-writing committee, called the budget’s tax provisions “envy economics” on Meet the Press on Sunday.

“This top-down redistribution doesn’t work,” Ryan said, previewing the rhetoric Republicans are likely to use in opposing Obama’s proposal.

The president’s budget is not legislation but instead a series of proposals and requested budget spending levels for government agencies.

Congress has an April 15 deadline to produce its own budget resolution, which is an agreement between the House and Senate on spending levels.

Senate Budget Committee Chairman Mike Enzi, R-Wyo., said in a preview of his budget plans that he aims to finish writing the budget before the deadline and that Republicans will try “to balance the budget in a 10-year period and we hope to do it without using gimmicks or bad accounting.” A particular focus would be cutting annual deficits in the first years of the 10-year budget window, Enzi said, instead of delaying cuts for later years in which they could be reversed before they took effect.

Later this week, top administration officials, including Treasury Secretary Jack Lew, will appear before Congress to testify on the budget.