Obama eyes deficit reduction

OBAMA EYES DEFICIT REDUCTION…. Just yesterday, in his weekly address, President Obama said he is determined to “get exploding deficits under control.” He previewed a federal request budget, due out this week, that is “sober in its assessments, honest in its accounting, and lays out in detail my strategy for investing in what we need, cutting what we don’t, and restoring fiscal discipline.”

The president added, “[W]e can’t generate sustained growth without getting our deficits under control.”

To that end, the White House is “putting the finishing touches on an ambitious first budget” that aims to cut the deficit in half over the next four years. Republicans who opposed the economic stimulus plan built their arguments around fears of long-term debt (I believe “generational theft” was the phrase of choice). So, will the GOP be thrilled to hear Obama’s deficit reduction plan?

Probably not.

To get [to a projected $533 billion deficit — 3% of GDP — in 2013], Obama proposes to cut spending and raise taxes. The savings would come primarily from “winding down the war” in Iraq, a senior administration official said. The budget assumes continued spending on “overseas military contingency operations” throughout Obama’s presidency, the official said, but that number is lower than the nearly $190 billion budgeted for Iraq and Afghanistan last year.

Obama also seeks to increase tax collections, mainly by making good on his promise to eliminate some of the temporary tax cuts enacted in 2001 and 2003. While the budget would keep the breaks that benefit middle-income families, it would eliminate them for wealthy taxpayers, defined as families earning more than $250,000 a year. Those tax breaks would be permitted to expire on schedule in 2011. That means the top tax rate would rise from 35 percent to 39.6 percent, the tax on capital gains would jump to 20 percent from 15 percent for wealthy filers and the tax on estates worth more than $3.5 million would be maintained at the current rate of 45 percent.

Obama also proposes “a fairly aggressive effort on tax enforcement” that would target corporate loopholes, the official said. And Obama’s budget seeks to tax the earnings of hedge fund managers as normal income rather than at the lower 15 percent capital gains rate.

This is, of course, entirely in line with the agenda presented to the electorate in 2008. As David Axelrod told the NYT, “This is consistent with what the president talked about throughout the campaign,” and “restores some balance to the tax code in a way that protects the middle class.”

We’ll have a better sense of the details on Thursday, when the White House will release a 150-page “Economic and Budget Policy” report. This outline will be followed by the complete budget for the 2010 fiscal year, released in April, though the outline will “make clear” that the president “intends to push ahead on promises to contain health care costs and expand insurance coverage, and to move toward an energy cap-and-trade system for controlling emissions of gases blamed for climate change.”