President Obama submitted his budget plan to Congress yesterday. The plan included most notably a $1.75 trillion deficit. However, Obama did promise to reduce the deficit by a little more than half by the end of his first term. For more information about Obama’s budget plan, including what we are paying for and how we plan to pay for it, read the following article from Money Morning:
U.S. President Barack Obama yesterday (Thursday) outlined a the $3.94 trillion budget plan that includes a $1.75 trillion deficit in the current fiscal year ending Sept. 30, and that plans for a $1.17 trillion deficit for fiscal 2010.
The new U.S. president sent his fiscal 2009 budget blueprint to Congress yesterday. He pledged to cut the shortfall in half by the end of his first term in office, but says the outlays are necessary right now.
“There are times when you can afford to redecorate your house,” President Obama said as he released the outline, “and there are times when you have to focus on rebuilding its foundation.”
Obama slammed what he called the “dishonest accounting” that plagued previous administrations and pledged to make government “more open and transparent.” But Obama’s chief mantra continued to focus on sacrifice, not just on the part of Americans, but by Congress, as well.
“Having inherited a trillion-dollar deficit that will take a long time for us to close, we need to focus on what we need to move the economy forward, not on what’s nice to have,” Obama said. “We will each and every one of us have to compromise on certain things we care about but which we simply cannot afford right now.”
What We’re Paying For
The new budget includes $75.5 billion for the rest of 2009 to pay for the wars in Iraq and Afghanistan, and $130 billion for 2010. Nearly $534 billion has been allocated to the Defense Department in 2010, a 4 percent increase from 2009.
One of the cornerstones of Obama’s foreign policy is to reduce the United States’ dependence on foreign oil.
In an effort to break U.S. dependence on oil supplies “controlled by foreign dictators,” Obama said his administration would “invest $15 billion a year for 10 years to develop technologies like wind power and solar power and to build more efficient cars and trucks right here in America.”
The goal of diversifying the nation’s energy supply as a means of disengaging the U.S. military from the Middle East and protecting the environment has long been a staple message of Obama’s.
Another central focus of Obama’s policies has been a promise to reform healthcare. And that promise is addressed in the president’s inaugural budget.
“Some researchers believe that healthcare costs could be reduced by a stunning 30 percent — or about $700 billion a year — without harming quality if we moved as a nation toward the proven and successful practices adopted by the lower-cost areas and hospitals,” the 146-page budget summary reads.
The administration projects that the changes would save $1.8 billion in 2010, $16.2 billion in 2011 and said it will increase amounts annually to create a $633.8 billion fund to pay for healthcare reform by 2019.
Money also will be saved by resolving inefficiencies and reducing overpayments in Medicare, the federal health insurance plan that covers 44 million elderly people.
"The Government Accountability Office has labeled Medicare as ‘high-risk’ due to billions of dollars lost to overpayments and fraud each year,” the budget reads.
Also included is $1 billion to help the U.S. Food and Drug Administration strengthen its food safety efforts, $6 billion dedicated to cancer research and “$330 million to increase the number of doctors, nurses, and dentists practicing in areas of the country experiencing shortages of health professionals.”
"With this budget, we are making a historic commitment to comprehensive health care reform," Obama said.
However, the biggest focus of the budget was the financial crisis that has engulfed the economy. Obama’s budget sets aside $250 billion “for further efforts to stabilize the financial system.”
Officials have said that the $250 billion is a “placeholder,” which the administration hopes it will not to have to spend, but felt compelled to account for.
Other fiscal measures listed in the budget include:
- Making the $800 “Making Work Pay” tax cut permanent.
- Expanding the Child Tax Credit.
- Increasing food stamp benefits for over 30 million Americans.
- Providing nearly 60 million retired and disabled Americans an immediate $250 by temporarily increasing benefits.
- And extending, expanding, and reforming unemployment insurance benefits.
Obama has acknowledged that bank relief and government spending are not particularly popular, but they are necessary to buttress the faltering economy.
“I promise you — I get it,” he said in a speech before Congress Tuesday, but “my job — our job — is to solve the problem."
How We’re Paying for It
President Obama said Tuesday that his team is working diligently to eliminate unnecessary spending to rein in the soaring deficit.
“My administration has also begun to go line by line through the federal budget in order to eliminate wasteful and ineffective programs,” Obama said. “We have already identified $2 trillion in savings over the next decade.”
Obama’s budget proposes Congress eliminate several farm subsidy programs, large Pentagon weapons programs, and a regulatory loophole that lets Wall Street hedge-fund managers pay lower tax rates than many of their low-paid assistants.
"Under current law, investment managers have been exploiting a loophole in our tax code to pay 15 percent on their earned income, the same rate that a middle-class family making $80,000 a year pays. The budget calls for closing the so-called ‘carried-interest’ loophole," the list said.
Obama plans to save $9.8 billion over 10 years by phasing out direct payments to farmers with sales revenues of $500,000 or more per year.
“About 25 percent of direct payments go to farmers with farm sales [revenue] of greater than $500,000,” the budget reads.
The budget also aims to reduce crop insurance premium subsidies and eliminate the Resource Conservation and Development (RC&D) program and cotton storage credits, which require the government to pay the storage costs of cotton that is put under loan with USDA.
And while upping the 2010 defense budget by 4 percent to $533.7 billion 2010, increase over 2009, the administration was also critical of costly weapons programs.
The Department of Defense’s “new weapons programs are among the largest, most expensive and technically difficult that the Department has ever tried to develop” the budget says. “As a consequence, they carry a high risk of performance failure, cost increases, and schedule delays.”
The White House will further narrow the deficit by restoring “a basic sense of fairness to the tax code, eliminating incentives for companies that ship jobs overseas and giving a generous package of tax cuts to 95 percent of working families.”
The budget proposes $636.7 billion be generated over the next 10 years by increasing taxes on America’s wealthy. This will be accomplished mainly by reversing tax cuts given to individuals that make $200,000 and couples making more than $250,000 a year by Obama’s predecessor, President George W. Bush.
The White House also proposes raising $353.5 billion over the next decade by repealing credits and tax reductions awarded to oil and gas companies.
Obama’s ultimate goal is to cut the deficit in more than half to $533 billion by 2013. That could be a challenge, experts say.
This article has been reposted from Money Morning. You can view the article on Money Morning’s investment news website here.