AP: Obama budget moves toward universal healthcare Associated Press

Published: Thursday February 26, 2009





Print This Email This WASHINGTON-- President Barack Obama is sending Congress a "hard choices" budget that would boost taxes on the wealthy and curtail Medicare payments to insurance companies and hospitals to make way for a $634 billion down payment on universal health care.



Obama's first budget, which will top $3 trillion, predicts the deficit for this year will soar to a whopping $1.75 trillion, according to administration officials who spoke on condition of anonymity before the public unveiling of the budget Thursday. The huge deficit reflects the massive spending being undertaken to battle a severe recession and the worst financial crisis in seven decades.



As part of the effort to end the financial crisis, the administration will propose boosting the deficit by an additional $250 billion this year, enough to support as much as $750 billion in increased spending under the government's financial rescue program. That would more than double the $700 billion bailout effort passed by Congress last October.



Obama, in a morning briefing, spoke of "hard choices that lie ahead." He called his budget "an honest accounting of where we are and where we intend to go."



One administration official called the request for additional bailout resources a "placeholder" in advance of a determination by the Treasury Department of what will actually be needed.



The spending blueprint Obama is sending Congress is a 140-page outline, with the complete details scheduled to come in mid to late April, when the new administration sends up the massive budget books that will flesh out the plan.



However, the submission of the bare budget outline was certain to set off fierce debate in Congress over Obama's spending and tax priorities. The document includes additional requests for the current year and Obama's proposals for the 2010 budget year, which begins Oct. 1.



The budget balances efforts to fulfill Obama's campaign pledges to deliver tax cuts to the middle class, expand health care coverage and combat the economic crisis with an effort to keep an exploding deficit over the next few years from becoming a permanent drag on the economy. However, Republicans assailed the budget for the tax increases and some Democrats worried that Obama was not doing enough to get the deficit under control.



"I would give him good marks as a beginning, but we have to do a lot more to take on this long-term debt buildup," said Senate Budget Committee Chairman Kent Conrad, D-N.D.



Republicans zeroed in on the tax increases to fund half of Obama's health care expansion.



"Everyone agrees that all Americans deserve access to affordable health care, but is increasing taxes during an economic recession, especially on small businesses, the right way to accomplish that goal?" asked House Minority Leader John Boehner, R-Ohio.



The $634 billion down payment on expanding health care coverage would come from a $318 billion increase over 10 years in taxes on the wealthy, defined as couples making more than $250,000 per year and individuals making more than $200,000. The tax increase would occur by reducing the benefit the wealthy get on tax deductions. As one example, taxpayers in the current top tax bracket of 35 percent would see their tax deduction for every $1 given to charity drop from 35 cents to 28 cents.



The other half of the down payment on Obama's drive toward universal health care â $318 billion â would come from curtailing payments to hospitals and insurance companies under Medicare and drug payments under Medicaid.



To meet his pledge of tax cuts for the middle class, the president wants to make permanent the $400 annual tax cut due to start showing up in workers' paychecks in April as part of the $787 billion stimulus package just passed by Congress. Obama's budget also extends the middle class tax cuts passed by the Bush administration in 2001 and 2003. Those cuts were due to expire at the end of 2010. If Congress approves Obama's recommendations, the Bush tax cuts would only expire for couples making more than $250,000 per year.



The cost of the stimulus bill and the increased bailout support would push the deficit for this year to $1.75 trillion, a level â as a percentage of the economy â not seen since World War II. The deficit is expected to remain around $1 trillion for the next two years before starting to decline to $533 billion in 2013, according to budget projections.



Obama's plan proposes achieving $634 billion in savings on projected health care spending and diverting those resources to expanding coverage for uninsured Americans. The $634 billion represents a little more than half the money that would be needed to extend health insurance to all of the 48 million Americans now uninsured.



Americans now spend a total of $2.4 trillion a year on health care.



Obama also will ask for an additional $75 billion to cover the costs of wars in Iraq and Afghanistan through September, the end of the current budget year. That would be on top of the $40 billion already appropriated by Congress, the administration official said.



The administration will also ask for $130 billion for Iraq and Afghanistan in 2010 and will budget the costs of operations in Iraq and Afghanistan at $50 billion annually over the next several years.



Obama's budget proposal would effectively raise income taxes and curb tax deductions on couples making more than $250,000 a year, beginning in 2011. By not extending former President George W. Bush's tax cuts for such wealthier filers, Obama would allow the marginal rate on household incomes above $250,000 to rise from 35 percent to 39.6 percent.



The plan also contains a contentious proposal to raise hundreds of billions of dollars by auctioning off permits to exceed carbon emissions caps, which Obama wants to impose on users of fossil fuels to address global warming.



Some of the revenues from the pollution permits would be used to extend the "Making Work Pay" tax credit of $400 for individuals and $800 for couples beyond 2010, as provided in the just-passed economic stimulus bill.



About half of what officials characterized as a $634 billion "down payment" toward health care coverage for every American would come from cuts in Medicare. That is sure to incite battles with doctors, hospitals, health insurance companies and drug manufacturers.



Some of the Medicare savings would come from scaling back payments to private insurance plans that serve older Americans, which many analysts believe to be inflated. Other proposals include charging upper-income beneficiaries a higher premium for Medicare's prescription drug coverage.



To raise the other half, Obama wants to reduce the rate by which wealthier people can cut their taxes through deductions for mortgage interest, charitable contributions, local taxes and other expenses to 28 cents on the dollar, rather than the 35 cents they can claim now. Even more money would be raised if the top rate reverts to 39.6 percent, as Obama wants.



Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, called Obama's proposal to tax the wealthy to finance health care reform a starting point. But he wants to also examine taxing some of health insurance benefits provided by employers â an idea rejected by Obama in last year's presidential campaign.



Budget documents provided to The Associated Press show that Obama will not lay out a detailed blueprint for a health care overhaul, but a set of broad policy principles and some specific ideas for how to raise a big chunk of the money.



Obama's promise to phase out direct payments to farming operations with revenues above $500,000 a year is sure to cause concerns among rural Democrats.



Even after all those difficult choices, cutting about $2 trillion from the budget over 10 years, Obama's budget still would feature huge deficits.



The $1.75 trillion deficit projected for this year would represent 12.3 percent of the gross domestic product, double the previous post-war record of 6 percent in 1983, when Ronald Reagan was president, and the highest level since the deficit totaled 21.5 percent of GDP in 1945, at the end of World War II.



At $533 billion, the deficit in 2013 will be about 3 percent of the size of the economy, a level that administration officials said would be manageable.





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