Obama's Budget Proposes Up to $750 Billion More for Bank Aid
Feb. 26 (Bloomberg) -- President Barack Obama's first budget request would provide as much as $750 billion in new aid to the financial industry, as it lays plans to overhaul the U.S. health-care system and raise taxes on the wealthy.
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Feb. 26 (Bloomberg) -- President Barack Obama’s first budget request includes a contingency for as much as $750 billion in new aid to the financial industry this year while laying plans for a health-care system overhaul and higher taxes on the wealthy. The spending blueprint, sent to Congress today, forecasts record outlays for the current fiscal year of $3.94 trillion, up 32 percent from a year ago. That would yield a record deficit of $1.75 trillion in the year ending Sept. 30, equal to about 12 percent of the nation’s gross domestic product, the highest since World War II. The Obama administration plans to spend $3.55 trillion in fiscal 2010, beginning Oct. 1, with the deficit narrowing to $1.17 trillion. The president has promised to cut the shortfall in half by the end of his first term. “While we must add to our deficits in the short term to provide immediate relief to families and get our economy moving, it is only by restoring fiscal discipline over the long run that we can produce sustained growth and shared prosperity,” Obama said today before the budget was released. Higher Taxes The budget proposes to raise taxes on couples earning more than $250,000 a year, generating $636 billion over the next decade. To do so, Obama proposes raising the top two marginal income tax rates to 39.6 percent and 36 percent, limiting itemized tax deductions and increasing taxes on capital gains to 20 percent from the current 15 percent. The plan would also raise taxes on many Wall Street financiers, pare subsidies to insurance companies participating in the government’s Medicare health-care system by $170 billion, and trim spending on some defense programs. Obama, in office about five weeks, will release a more detailed budget in April. He called the outline “an honest accounting of where we are and where we intend to go.” On the economy, the administration forecasts the gross domestic product, the value of all goods and services, will contract 1.2 percent for the entire year, reflecting the deepening recession, and rebound to an average growth rate of 3.2 percent in 2010. Outside Forecasts The 2010 forecast is more optimistic than the 1.5 percent growth rate estimated by the nonpartisan Congressional Budget Office in January or the February Blue Chip consensus for an increase of 2.1 percent. The U.S. unemployment rate likely will average 8.1 percent this year, declining to 7.9 percent in 2010, suggesting a slow rate of jobless people returning to work, according to the administration. Inflation will be 0.6 percent this year, the budget office said, and increase to 1.6 percent next year. The additional bailout funds for financial institutions this year were inserted into the budget as a “placeholder,” administration officials said. White House budget director Peter Orszag said “we hope” the extra rescue money won’t be needed and there is no plan “at this point” to formally request the money from Congress. That will depend on the outcome of a Treasury Department review on the health of banks. Rescue Funding The aid appears in a line item “for potential additional financial stabilization efforts,” according to the budget overview. The budget office calculated a $250 bi