Obama Has Plan to Slash Deficit, Despite Stimulus Bill

President Obama, speaking about foreclosures on Wednesday in Mesa, Ariz., is scheduled to release his budget this Thursday.

Mr. Obama’s budget outline, which he will release on Thursday, will also confirm his intention to deliver this year on ambitious campaign promises on health care and energy policy.

The president inherited a deficit for 2009 of about $1.2 trillion, which will rise to more than $1.5 trillion, given initial spending from his recently enacted stimulus package. His budget blueprint for the 2010 fiscal year, which begins Oct. 1, will include a 10-year projection showing the annual deficit declining to $533 billion in the 2013 fiscal year, the last year of his term, officials said.

While that suggests a two-thirds reduction, exceeding Mr. Obama’s goal of at least half, advisers note that the current deficit as a starting point is inflated by one-time expenses to stimulate the economy.

Measured against the size of the economy, the projected $533 billion shortfall for 2013 would mean a reduction from a deficit equal to more than 10 percent of the gross domestic product — larger than any deficit since World War II — to 3 percent, which is the level that economists generally consider sustainable. Mr. Obama will project deficits at about that level through 2019, aides said.

In his weekly radio and Internet address on Saturday, Mr. Obama said his first budget was “sober in its assessments, honest in its accounting, and lays out in detail my strategy for investing in what we need, cutting what we don’t, and restoring fiscal discipline.”

“We can’t generate sustained growth without getting our deficits under control,” he added.

The president will propose to tax the investment income of hedge fund and private equity partners at ordinary income tax rates, which are now as high as 35 percent and could return to 39.6 percent under his plans, instead of at the capital gains rate, which is 15 percent at most.

Senior Democrats in Congress joined with Republicans in 2007 to oppose that increase. But with Wall Street discredited and lucrative executive compensation a political target, the provision could prove more popular among lawmakers.

Mr. Obama will also call for letting the Bush tax cuts on income, dividends and capital gains lapse after 2010 for individuals who make more than $250,000 a year. But while the top rate for income would rise to 39.6 percent, the top rate for capital gains and dividends would be 20 percent.

As a candidate, Mr. Obama called for immediately repealing those tax cuts. He decided instead to keep them in place through 2010, as scheduled, reflecting the widespread belief that raising taxes further depresses economic activity.

As for war costs, Mr. Obama’s campaign projected that withdrawing combat troops from Iraq would save about $90 billion a year. But it is not clear how much any savings would be offset by increased spending in Afghanistan, where Mr. Obama has ordered an additional 17,000 troops, bringing the total there to 56,000.

The budget will provide the first clues to how Mr. Obama will reassert fiscal discipline after signing into law a $787 billion economic recovery plan. As difficult as cutting the deficits will be, much of the reduction by the end of his term will simply reflect an end to spending from the two-year stimulus package and — assuming the economy recovers — higher tax revenues and lower expenditures for safety-net programs like unemployment compensation.

Mr. Obama will propose cutting a variety of programs, including the Medicare Advantage subsidies for insurance companies that cover seniors who can otherwise acquire health coverage directly from the government. Another target is spending on private contractors, especially for defense, which spiked during the Bush administration. And he will scale back some promises, including his proposal to double money for foreign aid.

The budget on Thursday will come amid a week of reminders of the nation’s fiscal plight. On Monday Mr. Obama will hold a “fiscal responsibility summit” at the White House with members of Congress from both parties, economists, union leaders and business representatives. On Tuesday he will make a televised address to a joint session of Congress — the equivalent of a State of the Union speech for a new president — that advisers said would focus on the economy. Meanwhile, Congress will debate $410 billion in overdue appropriations for this fiscal year.

Yet Mr. Obama will inflate his challenge by forsaking several gimmicks that President Bush used to make deficits look smaller. He will include war costs in the budget; Mr. Bush did not, and instead sought supplemental money from Congress each year. Mr. Obama also will not count savings from laws that establish lower Medicare payments for doctors and expand the alternative minimum tax to hit more taxpayers — both of which Mr. Bush and Congress routinely took credit for, while knowing they would later waive the laws to raise doctors’ payments and limit the reach of the tax.

Full details of Mr. Obama’s budget for the 2010 fiscal year will be released in April. The outline on Thursday will make clear that he intends to push ahead on promises to contain health care costs and expand insurance coverage, and to move toward an energy cap-and-trade system for controlling emissions of gases blamed for climate change.

“The president believes there are essentially three areas that have to move forward even as we pare back elsewhere — health care, energy and education,” said David Axelrod, his senior adviser. “These are the bulwark of a strong economy moving forward.”

While some people have predicted that Mr. Obama would have to shelve his priorities given rising deficits, his determination to proceed, especially on health care, reflects his economic advisers’ conviction that the government cannot control its finances without reforming health care. The ballooning cost of health care, and thus Medicare and Medicaid, is the biggest factor behind projections of unsustainable deficits in coming decades.

“He wants to present an honest budget, he wants to focus on health care, and he will cut the deficit by at least half by the end of his first term,” Peter R. Orszag, director of the White House Office of Management and Budget, said in an interview.

Mr. Obama will suggest in his budget that expanding health coverage to the more than 46 million uninsured can be done without adding to the deficit, both by making cost-saving changes in the delivery of care and by raising revenues. Advisers declined to identify the tax source.

Changes to the health care system will require investments in disease prevention programs, health information technology and research on cost-effective treatments, among other steps. Some money was included in the stimulus package. Even so, many health analysts believe big savings cannot be realized soon.

On energy policy, Mr. Obama’s budget will show new revenues by 2012 from his proposal to require companies to buy permits from the government for greenhouse gas emissions above a certain cap. The Congressional Budget Office estimates that the permits would raise up to $300 billion a year by 2020.

Since companies would pass their costs on to customers, Mr. Obama would have the government use most of the revenues for relief to families to offset higher utility bills and related expenses. The remaining revenues would cover his proposals for $15 billion a year in spending and tax incentives to develop alternative energy.

By : Jackie Calmes (Published On : February 21, 2009)

A version of this article appeared in print on February 22, 2009, on page A1 of the New York edition.

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Gregg Ends Bid for Commerce Job

WASHINGTON — Senator Judd Gregg of New Hampshire abruptly withdrew Thursday as the nominee for commerce secretary, saying he had “irresolvable conflicts” with President Obama over his economic stimulus plan and a concern over what many fellow Republicans believe is the politicization of the 2010 census.

Senator Judd Gregg withdrew his nomination for commerce secretary during a news conference on Capitol Hill on Thursday.

The departure of Mr. Gregg is the latest setback to a White House that has struggled to fill several top positions and to fulfill Mr. Obama’s pledge of building a bipartisan administration. He is the third prospective cabinet secretary — the second for the Commerce Department — to remove his name from consideration.

“I’m a fiscal conservative, as everybody knows, a fairly strong one,” Mr. Gregg told reporters at a news conference in the Capitol. “And it just became clear to me that it would be very difficult, day in and day out, to serve in this cabinet or any cabinet.”

“It was my mistake, obviously, to say yes,” he added.

But the political fallout is left to the White House, which now has a string of appointees who have stepped aside over vetting problems, unpaid taxes or philosophical differences with Mr. Obama. Since the president took office last month, not a week has passed without the White House responding to a personnel crisis.

Mr. Gregg said he alerted Mr. Obama to his decision “several days ago,” but administration officials said the senator’s withdrawal had taken them off guard.

The White House sought to contain the political fallout, issuing a terse statement and pointing out that Mr. Gregg had said he would “support, embrace and move forward with the president’s agenda.”

Mr. Obama, traveling in Illinois, told reporters that he had spoken to Mr. Gregg on Wednesday but that he did not know he planned to withdraw until Thursday. He said that the senator had had a “change of heart” and that he intended to keep his pledge of a bipartisan cabinet.

“I am going to keep working at this,” said Mr. Obama, adding that the American people were “desperate” for Democrats and Republicans to work together.

Mr. Gregg would have been the third Republican in the cabinet. The others are Defense Secretary Robert M. Gates and Transportation Secretary Ray LaHood.

The appearance by Mr. Gregg at his news conference in the Capitol was one of the few he had made in public all week. Senators assumed that he was preparing for his confirmation hearings, but he was huddled with his wife, Kathy, and a small circle of advisers trying to determine how he could undo his decision last week to join the Obama administration.

Mr. Gregg did not vote on the administration’s $789 billion economic stimulus plan the first time it came up in the Senate. He declined to tell reporters on Thursday how he would vote when the bill came up for final passage, but he expressed his disagreement with the policy by criticizing the plan in his withdrawal statement.

Senator Judd Gregg withdrew from consideration to be Commerce Secretary during a press conference on Capitol Hill on Thursday.

“It has become apparent during this process,” Mr. Gregg said, “that this will not work for me, as I have found that on issues such as the stimulus package and the census, there are irresolvable conflicts for me.”

“We are functioning,” he added, “from a different set of views on many critical items of policy.”

The White House signaled last week that it would exert greater control over the Census Bureau, in part because of a concern among minority groups over Mr. Gregg’s leading the Commerce Department. Then, in response to complaints by Republicans, the administration said that it would work closely with the director of the census, but that the census would not be under the direction of the White House.

The Senate majority leader, Harry Reid, Democrat of Nevada, had recommended Mr. Gregg for commerce secretary. The White House accepted Mr. Reid’s suggestion, in part, because the president had said he wanted his cabinet to be filled with a variety of viewpoints.

Senator Judd Gregg withdrew his nomination for commerce secretary during a news conference on Capitol Hill on Thursday.

Mr. Gregg praised Mr. Obama for this in his news conference. “He has been a person who has reached out and aggressively reached out, across the aisle,” the senator said. “And I immensely respect that, and I immensely respect him.”

The roster of fallen cabinet nominees also includes Tom Daschle, who stepped aside last week as the nominee for health and human services secretary because of questions about unpaid taxes, and Gov. Bill Richardson of New Mexico, who withdrew from consideration as commerce secretary because of an investigation into state contracts.

Mr. Obama’s choice for chief performance officer, Nancy Killefer, pulled her name from consideration because of unpaid payroll taxes for a household employee. Gen. Anthony C. Zinni was offered the position of ambassador to Iraq, but the opportunity was retracted.

Senator Judd Gregg with President Obama and Vice President Biden at the White House on Feb. 3, when his nomination was announced.

Mr. Gregg will remain in the Senate and said he would help Mr. Obama accomplish some pieces of his agenda, like reworking Social Security. “I do believe, genuinely, that I can be even more effective for this presidency in the Senate,” Mr. Gregg said.

Mr. Gregg added that he would not seek re-election to a fourth term in 2010, making him the fifth Republican senator to announce plans to retire next year.

Rahm Emanuel, the White House chief of staff who had been a strong proponent of Mr. Gregg’s nomination, sought to play down his decision to withdraw. “It is better that it happened now,” Mr. Emanuel said, “than when you have someone in the government.”

Among the responsibilities facing the next commerce secretary is oversight of the government’s multibillion-dollar rescue of the Detroit automakers Chrysler and General Motors.

Senator John D. Rockefeller IV, a West Virginia Democrat who is the chairman of the Commerce Committee, said he wished that Mr. Gregg had “thought through the implications of his nomination more thoroughly before accepting this post.”

Later in the day, Mr. Gregg said the census had been “only a slight issue” in his decision to withdraw. But the census has been a major issue between Republicans and Democrats for years, and Mr. Gregg has been involved in the dispute. A decade ago, he resisted efforts by President Bill Clinton to increase financing for the 2000 census.

In recent days, Republicans have been upset by suspicions that the Obama administration sought to assert more direct control over the census, a prospect they called troubling given that the president’s chief of staff, Mr. Emanuel, is a former Democratic congressman who helped his party win a majority in the House.

“We respectfully request that you reconsider and reverse your administration’s plans to transfer control of the Census Bureau and the 2010 census to the White House staff,” the House Republican leader, John A. Boehner of Ohio, wrote Thursday in a letter to the president.

The census has huge implications social and political. It is used to distribute federal money to states and cities based on population, and to redraw Congressional districts — determining how many seats in the House that growing states will pick up at the expense of states with relatively stagnant populations.

White House officials said they did not have any leading contenders for commerce secretary. It could be difficult, they feared, to attract a strong candidate who would be the third person selected for the post.

The administration did have one key position filled Thursday when the Senate, by voice vote, confirmed Leon E. Panetta to run the Central Intelligence Agency.

Jackie Calmes and David Stout contributed reporting from Washington, and Helene Cooper from East Peoria, Ill.

By : Jeff Zeleny Published on : February 12, 2009
A version of this article appeared in print on February 13, 2009, on page A1 of the New York edition.

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