President Obama has proposed a $3.8 trillion (€2.8 trillion) budget to Congress combining controversial cuts to social welfare with tax hikes on the wealthy in a bid to draw Republicans back to negotiations.
In a political gamble aimed at reviving deficit-reduction talks, the US president renewed attempts to raise $580 billion in revenue by curbing deductions and closing loopholes for high earners but tied them to changes to government-funded social security and healthcare for the elderly to appease Republicans.
Calling for an overhaul of the US tax system and compromise from Republicans, Mr Obama said if his opponents were serious about debt reduction, there's "no excuse to keep these loopholes open."
Fifth budget
As part of his fifth budget, Mr Obama included an offer made last year to Republicans in Congress to change cost-of-living calculations for social security and tax brackets to a less generous measure that would slow an increase in benefits for those in receipt of government support under entitlement programmes.
He said his proposed budget showed he was moving in the direction of the Republicans, though the reductions in healthcare and pension programmes are likely to leave Democrats unhappy.
Proposing to reduce the deficit by $1.8 trillion over 10 years, bringing total deficit savings to $4 trillion, Mr Obama said that his budget offered a fiscally responsible path. His measures would reduce the annual deficit to $744 billion, the lowest gap between spending and taxes since 2008.
“When it comes to deficit reduction, I’ve already met the Republicans more than halfway,” the president said, challenging Republicans to show they are “as serious about the deficits and debt as they claim to be.”
Republicans believe the budget doesn’t go far enough to reduce the government’s $973 billion deficit in 2013 and the overall $16.4 trillion debt fast enough. They oppose tax increases and are pushing for sharp cuts in spending after Republicans conceded new revenues to avoid the fiscal cliff at the start of the year.
Hold hostage
"I would hope that he would not hold hostage these modest reforms for his demand for bigger tax hikes," said Republican speaker of the House of Representatives John Boehner, who leads his party in the debt reduction negotiations.
“The president got his tax hikes in January. We don’t need to be raising taxes on the American people. So I’m hopeful in the coming weeks we’ll have an opportunity, through the budget process, to come to some agreement.”
GOP members are still likely to resist strongly the president’s plans forcing individuals who earn $1 million a year to pay least 30 per cent of their income in taxes after any gifts they make to charity.
Under plans flagged in his state of the union address, the president is proposing providing $77 billion towards an extension of early childhood education. He plans to cover this with increase in the federal tobacco tax to $1.95 from $1.01 per packet of cigarettes.
