WASHINGTON (Reuters) - President Barack
Obama will unveil a budget this week that seeks to boost spending on new
initiatives such as road repairs, education programs and tax breaks for
the working poor while avoiding an increase in U.S. deficits.
Obama has made reducing the gap between the rich and the poor a
centerpiece of his agenda for his next three years in office. But he
is limited in his ability to offer bold new initiatives because of a
budget accord he reached in 2011 with House of Representatives
Republicans that puts strict curbs on both domestic and military
spending.
An agreement reached in December between congressional Republicans
and Obama's Democrats allowed a slight easing of curbs on spending
in the current 2014 fiscal year, but outlays will be essentially
flat in fiscal 2015, which begins October 1.
Because of the caps, spending on programs subject to annual review
in 2015 will total $1.014 trillion compared to $1.012 trillion - an
increase of less than two-tenths of a percent.
Obama's budget and the coming debate in Congress will focus on how
to work within those limits.
"We're on track to having discretionary spending the lowest as a
share of the economy since we started recording discretionary
spending in 1962," White House Council of Economic Advisers Chairman
Jason Furman said last week. "With that comes a lot of choices that
we'd rather not be making ... there are pretty difficult choices in
just about every area of the budget."
Even with only a minuscule spending increase, Obama's budget
proposals are unlikely to become law anytime soon.
The divided U.S. Congress controls the government's purse strings
and Republicans who hold power in the House of Representatives
disagree with policy priorities such as added spending on job
training and other programs in Obama's budget.
That means Obama's blueprint is more of a campaign document than a
road map to the country's fiscal path over the next year. It will be
used to guide messaging in the November congressional elections in
which Democrats are fighting to keep control of the Senate and avoid
losing seats in the House.
The budget will flesh out a proposal Obama made in his State of the
Union address to expand a tax break for the working poor known as
the Earned Income Tax Credit. The president wants to increase the
size of the credit for workers without children.
The credit, which has been in place since the mid-1970s, is meant to
give low-income workers an incentive to work rather than receive
government handouts. But it is substantially more generous for
workers with children. Those with at least one child can receive up
to $3,305 in 2014, while the maximum for childless workers is $496.
The benefit also begins to phase out at a much lower income level
for childless workers - as soon as $8,810, as opposed to at $17,830
for a worker with one child.
"It will be a strong antipoverty measure," said Jared Bernstein, a
former economic aide to Vice President Joe Biden who is now with the
Center on Budget and Policy Priorities.
A 2009 Georgetown University paper put the cost of such an expansion
at $12.1 billion.
Another of Obama's priorities is an expansion of early childhood
education. Advocates say Obama's "universal pre-kindergarten" idea
would better prepare children for school and help workers by making
childcare more widely available.
Obama proposed spending $75 billion over 10 years and $1.3 billion
in the first year on the early education program in his 2014 budget.
He would have had smokers pay for it by increasing cigarette taxes
to $1.95 per pack from $1.01 and indexing the tax to inflation.
While that issue gained little traction, Obama is betting a fall
deadline will force action on another one of his proposals: $302
billion for transportation projects, an idea he hopes will attract
some Republican support.
Legislation authorizing federal highway, rail and transit spending
lapses September 30. While both the AFL-CIO, the nation's largest
labor union and the U.S. Chamber of Commerce back efforts to upgrade
transportation, Democrats and Republicans disagree on how to pay for
highway repair.
To pay for the spending, Obama is proposing a corporate tax-code
overhaul that would lower tax rates for companies but also eliminate
a range of tax breaks, yielding $150 billion to spend on
transportation.
Representative Tom Cole said House Republicans were open to
discussing infrastructure but whether they could come to an
agreement would depend on how it is funded.
Republicans, who plan to issue their own budget proposal this year,
have criticized Obama for resisting making cuts to Social Security
and Medicare entitlement programs.
"If we actually got entitlement reform that saved money over the
course of a decade, there's no reason some of that savings couldn't
flow toward infrastructure, or back toward the military, and still
move us down the road on long-term deficit reduction," said Cole, an
Oklahoma Republican and close ally of House of Representatives
Speaker John Boehner.
The Congressional Budget Office has projected the budget deficit
will total $514 billion in fiscal year 2014, or 3 percent of gross
domestic product. That would be a decrease from $680 billion, or 4.1
percent of GDP, in the fiscal year 2013 that ended September 30.
However, CBO said that without action to rein in spending on
entitlement programs, the deficit would start rising again starting
in 2016 as more of the U.S. population retires to reach $1.03
trillion in 2022, or 4.1 percent of GDP.
(Reporting by Mark Felsenthal and David Lawder; Editing by Caren
Bohan and Andrea Ricci)
