With the mission to reduce fiscal deficit to 1.7% of the US GDP, the Obama budget of 2014 has proposed some controversial spending cuts and tax increases in his $3.77 trillion budget for 2014, rubbing both Democrats and Republicans in the wrong way.
The projected budget shortfall for the 2014 fiscal year, starting October 1, is $744 billion or 4.4% of GDP, down from $973 billion in 2013, and four years of post-recession deficits exceeding $1 trillion. The budget calls for reducing deficit by $1.8 trillion over 10 years or $4 trillion in total, a goal that is acceptable to both parties.
However, the budget calls for $1 trillion in tax hikes over 10 years. This includes enacting the Buffet rule of a minimum 30% tax rate for income above $1 million and save $53 billion over 10 years, raise taxes on large estates passed on to heirs, and end the tax break for "carried interest" profits earned by investment fund managers. These tax raising proposals do not go down well with the Republicans, who after passing a rate increase for higher income levels, are wary of any move to raise taxes.
The Democrats, on the other hand, are resistant to spending cuts on popular pension and healthcare plans. The budget proposes curbing the spending on Social Security by $130 billion over 10 years by switching to a chained CPI for calculating the annual cost of living increases. It also proposed cuts of about $400 billion in spending for Medicare.
Some salient features of President Obama's Proposed 2014 Budget
- Create jobs with investments in education, manufacturing, clean energy, infrastructure, and small business.
- Includes $1 billion investment to launch manufacturing innovation institutes.
- Provides $50 billion for infrastructure investment.
- Include $400 billion in health savings
- Curb spending on Social Security by changing cost of living variables and save $130 billion over 10 years
- Close tax loopholes and reduce tax benefits for the wealthiest
- Raise minimum wage to $9 per hour
- Raising taxes on large estates passed on to heirs
- Capping the value of the tax exemption for interest paid by municipal bonds
- Expand early childhood education would be financed by nearly doubling the federal tobacco tax
President Obama said he is willing to make tough choices that might not be popular within his own party because in these tough times there cannot be sacred cows for either party.