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April 10. 2013 1:51PM

Obama budget aims to kickstart deficit-reduction talks

WASHINGTON - President Barack Obama proposed a $3.77 trillion budget on Wednesday that combines controversial cuts to social safety net programs with tax increases on the wealthy.

The package is meant to lure Republicans to negotiate a broad deficit-reduction plan, but the details mirror a proposal Obama laid out last year that was rejected by Republican leaders.

Obama's budget for fiscal year 2014, which begins on Oct. 1, would trim the deficit over three years by requiring people making more than $1 million annually to pay more in taxes while enacting spending cuts that would replace the "sequester" reductions that went into place last month.

It has little chance of becoming law.

Many Republicans reject Obama's push for tax increases and many Democrats oppose cuts to the popular Social Security retirement program.

But both sides want to lower the deficit, which Obama's budget projected would fall to 744 billion in 2014, or 4.4 percent of gross domestic product, from an estimated $973 billion in 2013.

The president said his proposal - particularly the healthcare and pension program cuts painful to his fellow Democrats - meant he had moved in Republicans' direction.

"When it comes to deficit reduction, I've already met Republicans more than halfway," Obama said in remarks at the White House.

"So, in the coming days and weeks, I hope that Republicans will come forward and demonstrate that they're really as serious ... about the deficits and debt as they claim to be."

Obama's budget aims to achieve $1.8 trillion in deficit reduction over 10 years. Added to the $2.5 trillion in deficit cuts from past efforts, the total would be above the $4 trillion reduction both parties have said would be an acceptable goal.

The ratio of deficits to GDP would fall to 2.8 percent in 2016, below the 3 percent level economists say is necessary to put debt on a path to shrinking as a share of the economy.

Republicans largely dismissed Obama's proposal.

John Boehner, the Republican speaker of the House of Representatives and Obama's main opponent for deficit talks, said Obama's proposed cuts to entitlement programs such as Social Security were praiseworthy but not sufficient.

"I would hope that he would not hold hostage these modest reforms for his demand for bigger tax hikes," Boehner said.

"The president got his tax hikes in January, we don't need to be raising taxes on the American people. So I'm hopeful in the coming weeks we'll have an opportunity, through the budget process, to come to some agreement," he said.


Looking for a deal

Obama's hope is to build a coalition of lawmakers willing to move toward his position, although most observers see that as unlikely. He has invited 12 Republicans to dinner at the White House on Wednesday.

Both sides were unable to prevent some $85 billion in across-the-board "sequestration" spending cuts from going into effect March 1.

Obama's budget proposal would replace those cuts with his original deficit-reduction proposal from December. That offer included $930 billion in spending reductions and some $580 billion in tax revenues.

Obama's budget revives his call that wealthier people help more with deficit reduction. It would require those making $1 million a year or more to pay at least 30 percent of their income in taxes, after gifts to charity.

Controversially, it also proposes using a less generous measure of inflation to calculate cost-of-living benefit increases for the beneficiaries of some federal programs. This change would have the effect of shrinking payments to some who receive the popular Social Security retirement programs.

Although Obama has pledged to shield some of the most vulnerable beneficiaries, the proposal has drawn strong opposition from some fellow Democrats and groups representing labor.

In line with proposals from his State of the Union address, Obama's budget includes spending on policy priorities such as infrastructure and expanded pre-school programs.

A proposal for $77 billion in spending to expand early childhood education would be financed by nearly doubling the federal tobacco tax to $1.95 from $1.01 per pack of cigarettes.

The budget also includes a 10 percent tax credit for small businesses that raise wages or hire new workers.

Obama's budget is a clear contrast with a rival blueprint by Representative Paul Ryan, the 2012 Republican vice presidential nominee and potential 2016 presidential candidate.

Ryan's plan aims to balance the budget in 10 years through deep cuts to healthcare and social programs while lowering tax rates.

"The real question I want to know is: When does he balance the budget? Does he propose to ever balance the budget?" Ryan said on MSNBC's "Morning Joe" program.

The Obama budget envisions a steady pickup in economic growth but only a gradual decline in the unemployment rate.

The White House sees growth rising to 3.4 percent in 2014 from 2.6 percent this year, while the jobless rate would drop to 7 percent at the end of 2014 from 7.5 percent in the last three months of 2013.

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