Key Details of Obama's $3.6 Trillion FY 2010 Budget Requests

February 26, 2009 06:00 PM

via a special arrangement with Informa Economics, Inc.

Obama's budget proposals signal CHANGE if Congress goes along

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

President Barack Obama on Thursday outlined his $3.6 trillion Fiscal Year 2010 budget request for federal spending stretching out over a decade. Citing a “one in a generation” opportunity to chart and dramatically alter the nation’s path, Obama released a summary of plans for federal agencies stretching out over a decade. His full request is expected in April.

The following are key details -- I previously wrote a separate column on ag-related spending/cuts.

-- Federal spending: Federal spending for FY 2010, the combined total of annual appropriated monies and mandatory spending for items like Social Security and Medicare, would total about $3.552 trillion, while receipts will total $2.381 trillion in 2010, leaving a deficit of $1.171 trillion. That would be below the projected record $1.752 trillion deficit for FY 2009. Federal outlays in FY09 will be 27.7 percent of GDP, from 21 percent of GDP in 2008, and 20 percent in 2007. In FY 2010, estimated government spending will be 24.1 percent of GDP.

-- Budget deficit: The White House projects a deficit of $1.75 trillion for this year, or 12.3 percent of the gross domestic product (GDP), a level not seen since 1942. While the deficit is projected to decline to $533 billion by 2013, some observers label that optimistic due to optimistic White House assumptions for a strong economic rebound. But Christina Romer, chairwoman of Obama's Council of Economic Advisers, said, “We had a lot of inside information. We knew what the plan is we are trying to put in place” to lift the economy. The budget forecast assumes that the US GDP will decline about 1.2 percent this year, and a growth forecast 3.2 percent for 2010.

-- Placeholder in place for more bank losses: The FY 2010 budget includes a $250 billion placeholder for government losses associated with additional financial rescue efforts. Those losses would come from the possible use of an additional $750 billion and are based on estimates that the government would get back two-thirds of its investment. OMB Director Peter Orszag said the administration currently has no plans to ask Congress or the money. Congress authorized a $700 billion rescue fund last year.

-- Financial regulation: The Securities and Exchange Commission (SEC) would get a 13 percent funding boost, bring its FY 2010 budget to more than $1 billion.

-- Income tax hikes: To pay for a lot of the additional spending in the budget, Obama income-tax rates would rise for singles earning $200,000, and couples earning $250,000, beginning in 2011, for a total increase in revenue of $656 billion over 10 years. Income tax hikes would generate $339 billion alone. It would raise the top two income-tax rates to 36 percent and 39.6 percent from 33 percent and 35 percent, respectively, starting in 2011. Estimates of households paying the top rates range up to 2.5 million. Limits on personal exemptions and itemized deductions would bring in another $180 billion. Higher capital gains taxes would bring in $118 billion.

-- Estate tax: The estate tax, slated to be repealed next year (for only one year), would be preserved, with the value of estates over $3.5 million ($7 million for couples) taxed at 45 percent.

-- Corporate taxes: Corporations doing business overseas could no longer defer US taxation on profits parked abroad, a development Obama has sated encourages the movement of jobs away from the United States. This would generate $210 billion over the next decade.

-- Hedge fund and private equity managers whose income stems from taking a percentage of their clients' investment gains would have to pay income-tax rates for that compensation as high as 39.6 percent after 2010, considerably above the current 15 percent capital gains rate they currently pay. This would generate $24 billion in revenue.

-- National health care: Much ($634 billion) of the additional revenue from tax increases would be to pay for expansion of the nation's health care system, with the aim of providing coverage to the more than 45 million uninsured. Many observers put the cost at $1 trillion or more over ten years.

-- Climate change/cap-and-trade: Obama wants to cap emissions of greenhouse gases, forcing polluters to purchase permits for emissions that would be phased down to 14 percent below 2005 levels by 2020 and 83 percent below 2005 levels by 2050. Importantly, the sale of those permits, beginning in 2012, would garner $645 billion through 2019. Of those revenues, almost $526 billion would be devoted to Obama's “Making Work Pay” $800 tax credit for working couples, helping to defray increased energy costs that utilities and others would likely pass on to consumers. About $120 billion of the spending would be on low-carbon technologies over ten years. The cap-and-trade system is projected to raise about $80 billion annually starting in 2012, and assumes a starting price of $20 per ton for carbon emissions, and amount sure to rise.

-- Energy: Another $120 billion would go to clean-energy technology, including a new electricity grid. There would be new levies on oil and gas companies, including an excise tax on Gulf of Mexico production and fees for drilling on federal lands, beginning in 2011 in an effort to close what Obama's aides said were loopholes that have provided companies “excessive royalty relief.”

-- Huge spending increase for EPA: Obama wants a massive 34 percent increase for EPA from the projected $7.8 billion the “independent” agency will get for FY 2009. The $10.5 billion funding request for FY 2010 includes a $19 million boost for work on the inventory of greenhouse gas emissions, to prepare for climate change legislation ahead. The EPA may try to regulate emissions administratively. Showing he's from Illinois Obama allocates $475 million for a new, interagency program on the environmental restoration of the Great Lakes. EPA currently has around 17,000 employees. They will get more if the funding increase is approved.

-- Pharmaceuticals: New rules would allow consumers to buy cheaper medicines from abroad, and a faster pathway to approval for generic drugs.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


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