Obama Reaches for Middle Ground With New Budget Plan

WASHINGTON—President Barack Obama will attempt to spur new budget negotiations Wednesday, first offering a broad plan he hopes can attract bipartisan interest and later dining with a dozen Republican senators to try to pave the way for more talks. The White House will seek to persuade Republicans to warm to its proposal to embrace more short-term spending, which administration officials say will boost jobs, while also locking in medium-term tax and spending changes to reduce the deficit. So far, the White House has found such an approach a tough sell, with Republicans opposing tax increases and saying much of the spending is wasteful. The Ins and Outs of the Federal Budget Drill down to see how components of federal spending and revenue have changed over time. [image] Mr. Obama's budget proposal will call for $3.77 trillion in spending for the fiscal year that begins in October, a senior administration official said, up 6% from projected spending levels in the current fiscal year. The higher spending would come from a combination of canceling the across-the-board spending cuts, known as the sequester, that began in March and pumping more money into education, infrastructure and mental-health treatment, among other things. The White House is hopeful that a number of new changes to its budget, including cuts to the growth of Social Security and other programs, could help attract Republican support. So far, GOP reaction has been mixed. The spending, combined with proposals to raise taxes on wealthier Americans, would lead to a federal budget deficit—the gap between spending and tax revenue—of $744 billion next year, the senior administration official said. This would be down from the projected $845 billion deficit in 2013 but much higher than the $528 billion deficit House Republicans advocate for next year. Budget Battle Stream Obama Aims to Spur New Budget Talks Treasury's Lew Offers Budget Messaging Preview Cuts Spur Air Force to Idle Part of Its Fleet Capital Journal: Liberals Find Themselves in Spending Trap Seib & Wessel: Building a Budget That would put the 2014 deficit at roughly 4.4% of gross domestic product, down from the projected 5.3% deficit in 2013 but higher than the 3.7% deficit that the Congressional Budget Office recently estimated would occur next year if the sequester cuts remained in place. The deficit would fall more sharply later in the decade under the president's plan, senior administration officials said, as a number of changes would kick in, affecting programs like Social Security, Medicare and military spending. Some of these cuts, included for the first time in the White House's budget, aren't sitting well with liberal lawmakers and unions, who have complained that the Obama administration is offering too many spending cuts in the budget. On taxes, the White House will propose limiting the tax breaks that wealthier Americans can claim through two separate initiatives, which would bring in roughly $580 billion in revenue over 10 years. Changing the way the consumer-price index is measured would slow the way tax brackets rise, bringing in a further $100 billion over 10 years. On business taxes, the administration will propose lowering rates but curbing enough deductions so that the overall level of corporate taxes remains the same. WSJ reporter Janet Hook explains why the Obama budget is arriving so late, and looks at whether there is any realistic hope Democrats and Republicans will find common fiscal ground. The White House will propose new taxes on tobacco products, which officials have said will be used to pay for a new "Preschool for All" initiative that would aim to create an early-childhood education system for all 4-year-olds. The president would direct $50 billion for infrastructure spending, on things like roads, highways, bridges, transit systems and airports. Administration officials have said the new initiatives wouldn't add to the deficit because they would be paid for by other budget changes, but they are likely to run into criticism on this front. A senior administration official said the infrastructure programs, for example, would be offset by money saved by ending the wars in Iraq and Afghanistan. Republicans have often described such "savings" as a budget gimmick. The portions of the budget proposal that could draw the most attention—and are expected to be the subject of discussion at the GOP dinner Wednesday—will be the measures to reduce the deficit. White House officials say the budget would build on the roughly $2.5 trillion in deficit-reduction measures—chiefly spending cuts and tax increases—that policy makers have already agreed to over the past two years. The new budget has already drawn some fire for including spending cuts the White House offered to Republicans in December, when Mr. Obama sought a compromise on tax and spending policy. These cuts include $130 billion in reductions over 10 years by slowing the rise in Social Security and other federal benefits by using a different inflation measure to calculate annual cost-of-living increases. The outreach to the GOP and shift in strategy is a gamble with no guarantee of success. The White House wants to show Republicans it is serious about reducing the deficit and will offer cuts in exchange for tax increases. The White House also wants to increase spending in a number of areas that administration officials believe will help lower unemployment. The unemployment rate was 7.6% in March and has remained stubbornly high since the financial crisis. "If we could get parties to come together, as the president's budget [Wednesday] will show, we could reach agreement on a balanced approach that provides for short-term growth and job creation, and long-term fiscal restraint," Treasury Secretary Jacob Lew said in an interview with NPR. But Republican leaders have said they won't accept the new taxes that Mr. Obama will propose, which come largely from limits on tax breaks for upper-income earners. They see many parts of the White House budget as recycled proposals that have been floated and ignored for several years. "Apart from reports of a modest entitlement change—and we'll need to see the details on that—it sounds like the White House just tossed last year's budget in the microwave," Senate Minority Leader Mitch McConnell (R., Ky.) said Tuesday. The White House's strategy, unlike during the past few budget negotiations, is to work around Mr. McConnell and House Speaker John Boehner (R., Ohio) and instead appeal to rank-and-file Republican senators who might be willing to back a large deficit-reduction package. And there are signs that this strategy, albeit in its early stages, is advancing. Sen. John McCain (R., Ariz.), said Tuesday the White House has "showed some willingness to compromise," a sentiment offered by some other Republicans this week. "It's a start,'' said Sen. John Hoeven (R., N.D.). "We have got to figure out how to get to a grand bargain. There are things in the budget where the president signaled he's willing.'' Messrs. McCain and Hoeven attended a dinner with Mr. Obama and 10 other GOP senators last month, where the group delved into budget issues. Since then, Mr. Obama and other White House officials have circled back with many of the attendees. A second dinner, to be held Wednesday at the White House, will include a new batch of GOP lawmakers, including Sens. Johnny Isakson of Georgia and Orrin Hatch of Utah. These talks are moving slowly, with White House officials focusing more on laying the groundwork for future talks. White House officials have designed their budget proposal to fall somewhere between the budget resolutions recently passed by the House and Senate. The House plan, supported only by Republicans, included no tax increases and deep spending cuts, which backers say would eliminate the deficit by 2023. The Senate plan, backed only by Democrats, would reduce the deficit through equal parts tax increases and spending cuts, but it avoids some of the changes to Social Security and other federal benefits that Mr. Obama will offer. Reconciling the differences between the House and Senate plans will be difficult, but some policy makers are trying to spur talks in advance of the summer. That is when the government is expected to run out of room under the statutory debt ceiling, making it much harder to borrow money and continue paying its bills.

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