Morning News - Budget Edition

Feb 26, 2009

According to numerous news organizations, the administration’s budget – to be unveiled today -- will propose the following: Further tax increases on the so-called rich to fund a $634 billion health care "reserve fund," including a cap on itemized tax deductions for high-income people and higher Medicare premiums; use proceeds from a new cap-and-trade program to pay for an extension of a two-year tax credit that benefits low and middle-income individuals; implement competitive bidding for Medicare Advantage, which by itself would save $177 billion, according to the administration; and roll back the Bush tax cuts on upper-income households. Even The New York Times said the budget would be "a pronounced move to redistribute wealth and re-impose a substantially larger share of the tax burden on the most affluent taxpayers."

In terms of the rest of the budget, the administration is already boasting it has identified $2 trillion in cuts over the next ten years. Half of those, however, are achieved by ending the 2001 and 2003 tax cuts and ending "deferral" used by U.S. multinationals to avoid double-taxation of foreign-based earnings. On the chopping block – if Obama can win congressional approval – are $10 billion in direct payments to farmers with sales of $500,000 or more per year; several weapons systems (to be named later); and the "carried-interest" tax provision.

The President has also added an overhaul of financial regulations to his crowded plate. Mr. Obama delivered a speech on the topic yesterday. While offering no specifics, he floated a number of core principles for reform, including consumer protections, accountability for executives, and regulation of the "shadow" banking system. Said Obama: "Let me be clear: The choice we face is not between some oppressive government-run economy or a chaotic and unforgiving capitalism. Rather, strong financial markets require clear rules of the road, not to hinder financial institutions, but to protect consumers and investors, and ultimately to keep those financial institutions strong."

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