Govt to run a deficit of $1.75 tn, equivalent to 12% of GDP.
President Barack Obama’s first budget request would provide as much as $750 billion in new aid to the financial industry, as well as overhaul the US health-care system and launch a programme to cut carbon-dioxide emissions.
The spending blueprint, being sent to Congress on Thursday, anticipates the government will run a deficit totaling $1.75 trillion in the year ending September 30, equivalent to about 12 per cent of the nation’s gross domestic product. Obama has promised to cut the shortfall, the biggest since World War II, in half by the end of his first term.
A senior administration official, in a briefing on Thursday with reporters, declined to say how large the White House believes next year’s deficit will be or provide the total budget figure.
The administration proposes to finance the budget in part by limiting tax deductions for couples earning more than $250,000 a year, raising taxes on hedge-fund managers, cutting defence spending and paring subsidies to insurance companies participating in the government’s Medicare health-care system.
More details will come in a 134-page overview the administration plans to release later on Thursday outlining budget priorities for the fiscal year that begins October 1. The administration official, noting Obama has only been in office for little more than a month, said the White House doesn’t plan to release a full budget until April.
Aid figure in flux
The official, speaking on condition of anonymity, said the White House hasn’t decided whether the $750 billion in additional aid to the financial industry will be needed. He said it will be put in the budget as “placeholder.”
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The official said the aid would appear in the budget as about $250 billion because the rules require policymakers to record the plan’s net cost to taxpayers. The government anticipates it would eventually recoup some, though not all, of the money expended to help financial companies.
The funds would come on top of the $700 billion rescue package approved last October by Congress.
The official said the White House is asking for a “down payment” of about $635 billion to begin overhauling the nation’s health-care system, which Obama has said is critical to expanding health-insurance coverage and getting the government’s fiscal house in order.
The money would be financed in part by the limits on tax deductions for those earning more than $250,000 a year and by requiring insurance companies participating in the Medicare Advantage programme to enter into competitive bidding.
‘Carried interest’ loophole
The budget proposes raising taxes on hedge-fund managers by eliminating the so-called “carried interest” tax loophole that allows investment managers to pay 15 per cent tax rates on their compensation rather than the usual income tax rates. The spending plan would also raise taxes on corporate income earned overseas and crack down on business transactions that are solely designed to reduce companies’ tax bills.
The budget would eliminate the Advance Earned Income Tax Credit, a tax break for low-income earners that government officials have said is poorly administrated.
The spending plan assumes the government would begin taking in at least $75 billion in 2012 from a cap-and-trade system that requires companies to buy credits if they exceed greenhouse-gas limits. That money would be used to invest in clean-energy technology and also help offset higher energy costs for lower-and middle-income Americans, according to officials who spoke on condition of anonymity.
War costs
On defence, the administration will request an additional $75 billion this year for Iraq and Afghanistan war costs, bringing the total annual spending on the conflicts to more than $140 billion. The budget assumes those costs will decline to about $130 billion in 2010 and $50 billion in subsequent years.
The administration official said Obama plans to pursue deficit reduction by cutting spending on defence, an area with “significant” opportunities for savings. Agriculture subsidies also are targeted for reductions, with the administration pushing to phase out payments to farmers earning more than $500,000 annually.
While the federal government has taken over Fannie Mae and Freddie Mac, the Obama administration opted to exclude most of the costs of running the mortgage financiers in its budget plan. The blueprint includes the money the Treasury Department has injected into the companies so far, the official said.