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What Obama's Budget Proposal Means to You

President Barack Obama placed his first stamp on the federal budget today, announcing a $3.55-trillion-dollar priority list that would cut taxes for the middle class, raise taxes for the wealthy, reform health care and bolster several programs that touch the lives of older Americans.

It also projects a deficit of $1.75 trillion for the current fiscal year—the highest as a percentage of gross domestic product since World War II.

But first the measure must pass Congress, where Republicans are leery of Obama’s emphasis on tax increases instead of spending cuts. The new fiscal year begins Oct. 1.

“I agree with the president that we need to make some tough decisions regarding how we spend taxpayer dollars,” says Sen. Republican Leader Mitch McConnell of Kentucky.

“Unfortunately, at this juncture, while the American people are tightening their belts, Washington seems to be taking its belt off.”

Obama defended his budget as an honest accounting free from past tricks used to hide the full costs of the federal government.

“We need to be honest with ourselves about what costs are being racked up—because that’s how we’ll come to grips with the hard choices that lie ahead,” Obama said Thursday. “And there are some hard choices that lie ahead."

Obama laid out a gloomy list of economic realities in his budget statement: Manufacturing jobs are at a 60-year low, 3.5 million Americans have lost jobs in the past 13 months and the stock market slide has wiped out nearly $3 trillion in retirement savings.

The ultimate test for Obama’s financial initiatives is whether the national economy recovers and the nation’s housing and financial markets revive—and individuals’ retirement savings with them.

Here are the budget highlights:


Obama would make the stimulus package’s temporary tax cut—up to $800 for working families—permanent. The money will offset payroll taxes on the first $6,450 in income. About 95 percent of workers would benefit. The budget document describes it as just the beginning of promised middle-class tax relief.


Obama would raise taxes for those making over $250,000 and essentially retain the 2001 and 2003 middle-class tax cuts for those making less. He proposes raising the current 33 percent and 35 percent tax rates for the 2.6 million richest Americans to 36 percent and 39.6 percent.

For those high-income families who itemize their deductions, he proposes capping deductions—including those for mortgage interest, charitable giving and investment expense—at 28 percent of gross income.

He would halt the scheduled repeal of the estate tax and impose a 45 percent tax on a married couple’s estate over $7 million.


The Obama budget sets aside a $634 billion down payment to transform the nation’s health care system. He leaves details of the reforms to Congress and future negotiations. But he would finance it in part by imposing higher taxes on richer Americans; by forcing the private Medicare Advantage insurance companies to compete for contracts; by charging a higher premium for high-income participants in the Medicare drug program; and by reducing Medicaid rebates to drugmakers. The plan also provides an added $340 million as incentives for doctors, nurses and dentists working in underserved regions of the country.


Obama would raise funding levels for the National Institutes of Health for cancer research, adding $6 billion as part of a plan to double cancer research. The money will go toward developing diagnostics and treatments.


Obama would increase Social Security funding by 10 percent—up $1.1 billion to $11.6 billion—to expedite approval of benefits, particularly for people with disabilities. Social Security officials wade through 4.2 million applications for benefits each year from retirees, survivors and Medicare patients and another 2.6 million disability claims. There is currently a more than two-year backlog for disability claims.


The Veterans Affairs Department would get a $25 billion increase over the next five years and much of it would go toward health care. The extra money would allow another 5.5 million veterans to get care. Non-disabled veterans with modest incomes, for instance, will be allowed into the VA health care system for the first time in more than six years.


Obama would set up a pilot program to help get more poor older Americans involved in the Supplemental Nutrition Assistance Program. The budget says older Americans are among the “most vulnerable and hardest-to-reach” people who are eligible for the aid. Obama also would increase funding for food banks and other feeding programs that help the poor, including the SNAP program.


The blueprint increases the Food and Drug Administration budget by $1 billion to protect the nation’s food supply.


The Obama budget proposes employers who do not provide retirement benefits be required to automatically enroll employees in a “direct-deposit” IRA account. This would increase the participation rate from 15 to 80 percent for low- and middle-income workers, the budget document claimed. 


Public transit would get a boost, including a $5 billion installment on Obama’s campaign promise to build a national network of high-speed passenger trains. Those funds, to spread out over five years, are on top of the $8 billion for high-speed trains in the recently enacted economic stimulus bill.

Tamara Lytle was a correspondent and Washington bureau chief for theOrlando Sentinelfrom 1997 to 2008.

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