- Associated Press - Tuesday, February 3, 2015

WASHINGTON (AP) - Boosting tax credits for the working poor emerged as one area of common ground as administration officials testified Tuesday on President Barack Obama’s budget for 2016.

House Ways and Means Committee Chairman Paul Ryan, R-Wis., who agrees with Obama on extending the earned income tax credit to more workers without children, said he hoped that lawmakers and the administration could agree on ways to finance expanding the credit.

“Let’s see if we can make the reforms pay for these groups,” Ryan said. “That would be enormous step in the right direction and that too perhaps could lead to a bipartisan common ground.”

But there was little sign of cooperation at the Senate Budget Committee, where Obama’s budget director Shaun Donovan defended the $4 trillion plan as stabilizing the deficit while raising taxes to ease the “mindless austerity” of automatic spending cuts known as sequestration.

“I want to emphasize that every investment in the budget - including both the discretionary investments made possible by reversing sequestration and mandatory (spending) and tax changes - are more than paid for through spending or tax reforms,” he said.

Republicans attacked the plan over its tax increases, spending hikes, and for adding more than $8 trillion to the national debt over 10 years.

“He wants to spend more. He wants to tax more,” said Senate Budget Chairman Mike Enzi, R-Wyo. “He wants us to owe - more, and more and more.”

Obama and many Republicans also hope to find overlapping common ground on proposals to increase defense spending, upgrade the nation’s aging infrastructure and fix the corporate tax system.

Agreement on any one of those is a long shot; there are significant differences between Obama and Republicans over scale and scope in each of their intersecting interests.

Here’s a look at key areas of Obama’s budget that could be opening bids in talks with Republican congressional leaders.

INCREASED SPENDING

Obama wants to loosen the budget cuffs on military and domestic programs that Congress applied as part of a budget deal in 2011. Deficits had hit $1.4 trillion in 2009 and cutting spending was a top political priority. Now deficits are nearly a third of that high-water mark and Obama has declared he wants to move away from “mindless austerity.”

Obama would boost spending by $74 billion - divided equally between the military and domestic programs - in 2016.

Republicans have voiced interest in increasing only the defense side of the equation. But Obama’s veto pen could force a deal. On the domestic side, Obama wants free community college for up to 9 million students and expanded child care for low- and middle-income families.

CORPORATE TAX SYSTEM

Obama and Republicans both say they want to overhaul the U.S. corporate tax system. The nation’s top rate of 35 percent is the highest among developed economies, even though tax breaks significantly reduce the tax burden on some industries.

Both sides say they would be willing to eliminate tax breaks to bring down rates and make the system more equal for all industries. But finding what tax breaks and incentives to eliminate and which ones to retain could lead to a lobbying frenzy that halts the process in its tracks.

Republicans want to reduce the top rate to 25 percent. Obama would reduce it to 28 percent, but set it at 25 percent for manufacturers. Rep. Paul Ryan, the new Republican chairman of the House Ways and Means Committee, has indicated he is open to negotiations.

In a potential sticking point, Obama wants a 19 percent tax on the overseas profits of U.S. companies, with a credit for taxes paid in the foreign country where they were earned.

Republicans and many in the business community object to foreign earnings being subject to taxes abroad and in the U.S. The U.S. is one of only a few countries that require corporations to pay taxes at home for their overseas earnings.

Organized labor leaders, meanwhile, say Obama’s tax plan doesn’t go far enough. AFL-CIO President Richard Trumka said Monday that corporations would still have incentives to shift jobs or profits overseas.

INFRASTRUCTURE

Obama’s budget proposes spending $478 billion over six years on upgrading highways, bridges and ports and modernizing transit systems. Lawmakers, most of whom have a public works needs in their districts or states, have been struggling to find ways to increase spending on infrastructure.

Obama would cover half of his spending with a mandatory, one-time 14 percent tax on the nearly $2 trillion in profits that U.S. companies have already accumulated overseas. That would generate about $238 billion, with the remaining $240 billion coming from the federal Highway Trust Fund, which is financed with a gasoline tax.

The former chairman of the House Ways and Means Committee, now-retired Rep. Dave Camp, R-Mich., proposed a similar idea last year with a lower mandatory tax, but the plan didn’t make headway. A bipartisan group of House and Senate members support a plan that would allow companies to bring their overseas profits to the U.S. tax free in exchange for purchasing infrastructure bonds.

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Associated Press writers Laurie Kellman, Nedra Pickler, and Andrew Taylor contributed to this report.

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