Obama sends record US$4t budget to Congress: Tax hikes for rich, help for middle class
President of the United States Barack Obama sent Congress a record US$4 trillion budget Monday that would boost taxes on higher-income Americans and corporations, pushing past tight federal spending caps to fund an ambitious public works programme and provide middle-class tax relief.
Obama's budget, which will set off months of wrangling in Congress, proposes spending US$4 trillion - US$3.999 trillion before rounding - in the 2016 budget year that begins October 1. That's a 6.4 per cent increase over estimated spending this year, projecting that the deficit will decline to US$474 billion.
In a lengthy run-up to Monday's budget release, the Obama administration highlighted a number of its proposals, including US$320 billion in increased taxes on the wealthy and corporations that would be used to pay for expanded middle class tax breaks.
The budget documents reveal that all the tax increases will total US$2 trillion, including a number of proposals Obama has made before to limit deductions the wealthy can take to reduce their tax bill.
Wealthy people would only be able to take tax deductions at the 28 per cent rate even if their income is taxed at 39.6 per cent and would also see an increase in their maximum capital gains rate to 28 per cent instead of 20 per cent.
A couple earning up to US$120,000 a year would qualify for a new "second earner" tax credit of up to US$500 as well as a maximum US$3,000 childcare credit for two children, triple the current credit of US$1,000.
Not all of Obama's tax hikes would hit the wealthy. His budget also proposes to raise US$95 billion over the next decade by hiking the tax on cigarettes from the current US$1.01 per pack to US$1.95.
Obama's spending plan would ease tight budget constraints imposed on the military and domestic programmes back in 2011 when lawmakers were responding to the public outcry over deficits that were then topping US$1 trillion a year.
Obama's budget calls these caps, known as sequestration, "mindless austerity". The elimination of the budget caps will boost spending by US$74 billion - divided between the military and domestic programmes - in 2016 and would result in a spending increase over the remaining six years the caps were to have been in place of US$362 billion.
In a budget agreement reached in late 2013, the budget caps were eased, but not eliminated for 2014 and 2015, but are due to go back in force in 2016.
STRENGTHENING THE MIDDLE CLASS
The administration said the budget represented a strategy to strengthen the middle class and help "hard-working families get ahead in a time of relentless economic and technological change".
"This country's better off than it was four years ago, but what we also know is that wages and incomes for middle class families are just now ticking up," Obama said in an interview broadcast on Monday's 'Today Show' on NBC. "They haven't been keeping pace over the last 30 years compared to, you know, corporate profits and what's happening to folks in the very top."
Republicans, however, accused the president of seeking to revert to tax-and-spend policies that will harm the economy while failing to do anything about the budget's biggest problem - soaring spending on government benefit programmes.
Obama's budget projects a deficit of US$583 billion in 2015, up significantly from last year's US$485 billion imbalance. Obama's budget plan never reaches balance over the next decade and projects the deficit would rise to US$687 billion in 2025.
The administration contends that various spending cuts and tax increases would trim the deficits by US$1.8 trillion over the next decade, leaving the red ink at manageable levels.
Obama's budget emphasises the same themes as his State of the Union address last month when he challenged Congress to work with him on narrowing the income gap between the very wealthy and everyone else.
Obama's six-year US$478 billion public works programme would provide upgrades for the nation's highways, bridges, and transit systems in an effort to tap into bipartisan support for spending on badly needed repairs.
Half of that money would come from a one-time mandatory tax on profits that US companies have amassed overseas that would be set at 14 per cent.
The budget also called for a US$60 billion programme for free community college for an estimated nine million students if all states participate. And it proposes expanding childcare to more than 1.1 million additional children under the age of 4 by 2025 and seeks to implement universal pre-school.
Obama also wants to require estates to pay capital gains taxes on securities at the time they are inherited. He also is trying to impose a 0.07 per cent fee on the roughly 100 US financial companies with assets of more than US$50 billion.