Obama angers Republicans, Democrats as new budget unveiled to Congress

US President Barack Obama has sent Congress a $3.77 trillion budget proposal aimed at increasing taxes on the wealthy and trimming Social Security. The higher taxes angered Republicans, while proposed cuts to benefit programs upset Democrats.

The proposal includes an additional $1.8 trillion in deficit reduction over the next decades, bringing total deficit savings to $4.3 trillion based on the administration’s calculations.

The main element of the budget proposal is a new cost-of-living formula that would help reduce future Social Security benefits. The current method of measuring increases in the consumer prices index (CPI) would be modified to follow a process known as ‘chained CPI.’

The new method would take into account changes that occur when consumers substitute goods that have risen in price with less expensive products, resulting in a slightly lower annual reading for inflation rates.

Social Security will not be the only program affected if the budget plan is passed: According to the Obama administration, the switch in the inflation formula would cut spending on government benefit programs by $130 billion over 10 years.

The plan also proposes cutting $400 billion from Medicare and other healthcare programs over the next decade. The cuts would come in a variety of ways, including negotiating better prescription drug prices and asking wealthy seniors to pay more.

Boosts to education and infrastructure spending

Obama’s plan is not all about budget cuts. It also proposes an additional $50 billion in infrastructure investments, including a $40 billion ‘Fix it First’ program to provide immediate funding to repair highways, bridges, transit systems and airports. An additional $1 billion would be provided to launch a network of 15 manufacturing innovation institutes across the country.

President Obama is also proposing the establishment of a program designed to offer preschool to all 4-year-olds from low- and moderate-income families. The money would come from increased taxes on tobacco products.

Taxing the wealthy

While Obama’s proposal includes cuts in government spending, it also involves increasing taxes for the country’s wealthiest 2 percent. The plan ensures that Obama would raise an additional $580 billion by restricting tax deductions for America’s richest. 

The budget would implement the ‘Buffett Rule,’ requiring that households with incomes of more than $1 million pay at least 30 percent of their income in taxes. Charitable giving would be excluded from the calculations.

Republican rejection

Obama has prepared himself for what will most certainly be an uphill battle with Republicans, who have been adamant in their rejection of higher taxes.

"When the president visited the Capitol last month, House Republicans stated a desire to find common ground and urged him not to make savings we agree upon conditional on another round of tax increases. If reports are accurate, the president has not heeded that call," Republican House Speaker John Boehner said in a statement last week.

As part of the administration’s effort to win over the most conservative members of Congress, Obama is holding a private White House dinner with about a dozen GOP senators Wednesday night. The budget is expected to be the primary topic, along with proposed legislation dealing with gun control and immigration.

Dubious Democrats

Obama will likewise need to win over Democrats to his plan. While most Democrats in Congress agree on higher taxes for the wealthy, they strongly oppose cuts to Social Security benefits. “You can’t call yourself a Democrat and support Social Security benefit cuts,” Stephanie Taylor, co-founder of the Progressive Change Campaign Committee said in a statement last week.

“The President is proposing to steal thousands of dollars from grandparents and veterans by cutting cost of living adjustments…Social Security is the core of the progressive and Democratic legacy. The President has no mandate to cut these benefits, and progressives will do everything possible to stop him,” she added.

Democrats are also unhappy with Obama’s proposed cuts to Medicare and other health programs over the next decade.

Turning up late

Obama’s spending and tax plan is arriving at Congress two months late. The administration blames the delay on December’s ‘fiscal cliff’ negotiation and fights over the March 1 automatic spending cuts.

It is unlikely that Congress will get down to serious budget negotiations until this summer, when the government will once again be confronted with the need to raise the government’s borrowing limit or face the prospect of defaulting on US debt for the very first time.