Obama Has Plan to Slash Deficit, Despite Stimulus Bill

[Richard Tafoya]

NY Times:
http://www.nytimes.com/2009/02/22/us/politics/22budget.html?ref=business

After a string of costly bailout and stimulus measures, President Obama will set a goal this week of cutting the annual deficit at least in half by the end of his term, administration officials said. The reduction would come in large part through Iraq troop withdrawals and higher taxes on the wealthy.

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Mr. Obama inherited a deficit for 2009 of about $1.2 trillion, which will rise to more than $1.5 trillion, given initial spending from his recently enacted stimulus package. His budget blueprint for the 2010 fiscal year, which begins Oct. 1, will include a 10-year projection showing the annual deficit declining to $533 billion in the 2013 fiscal year, the last year of his term, officials said. A reduction of that magnitude would more than meet Mr. Obama's deficit reduction goal.

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The president will propose to tax the investment income of hedge fund and private equity partners at ordinary income tax rates, which are now as high as 35 percent and could return to 39.6 percent under Mr. Obama’s plans, instead of at the capital gains rate, which is 15 percent at most.

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Mr. Obama will also call for letting the Bush tax cuts on income, dividends and capital gains lapse after 2010 for individuals who make more than $250,000 a year. As a candidate, Mr. Obama called for immediately repealing those tax cuts; he decided instead to keep them in place through 2010, as scheduled, reflecting the widespread belief that raising taxes further depresses economic activity.

[Richard Tafoya]

Continued:



As for war costs, Mr. Obama’s campaign projected that withdrawing combat troops from Iraq would save about $90 billion a year. But it is not clear how much any savings would be offset by increased spending in Afghanistan, where Mr. Obama has ordered an additional 17,000 troops, bringing the total there to 56,000.

The budget will provide the first clues to how Mr. Obama will reassert fiscal discipline after signing into law a $787 billion economic recovery plan. As difficult as cutting the deficits will be, much of the reduction by the end of his term will simply reflect an end to spending from the two-year stimulus package and — assuming the economy recovers — higher tax revenues and lower expenditures for safety-net programs like unemployment compensation.


Mr. Obama will propose cutting a variety of programs, including the Medicare Advantage subsidies for insurance companies that cover seniors who can otherwise acquire health coverage directly from the government. Another target is spending on private contractors, especially for defense, which spiked during the Bush administration. And he will scale back some promises, including his proposal to double money for foreign aid.