Democrats and Republicans poured cold water on President Obama‘s budget plan to cut down on wealthy taxpayers’ charitable giving tax deductions, the second of his ambitious cost-savings plans to earn lawmakers’ scorn, and underscoring the legislative minefield he is entering.
By reaching so broadly with his $4 trillion 2010 budget plan, and the giant deficits it will incur, Mr. Obama put his hard-won election mandate on the line, saying if lawmakers want to do big things - from boosting education and clean energy technology to overhauling health care - they will have to find ways to pay for it.
From his plan to cut payments to farmers, which both parties all but ruled out this week, to his goal of a complex cap-and-trade system to control greenhouse gas emissions, lawmakers predicted Mr. Obama will have to survive challenges from political friends and foes alike.
“I work for the American people, and I’m determined to bring the change that the people voted for last November.And that means cutting what we don’t need to pay for what we do,” Mr. Obama said in announcing his budget.
Democrats pronounced the budget a good start and praised the president for undoing some of the budget gimmicks of the George W. Bush years. But they joined Republicans in worrying about long-term deficits, which increase from 2014 on through 2019, the end of Mr. Obama’s budget projections.
“I think [Mr. Obama] himself has acknowledged that we’ve got to do more about the debt build-up that will occur over the following years. And so I think that becomes one of our significant ongoing challenges,” said Sen. Kent Conrad, North Dakota Democrat and chairman of the Budget Committee.
He and members of both parties also fretted over the farm payment reductions, which Mr. Obama is counting on to save $9.8 billion over 10 years - part of the $2 trillion in savings Mr. Obama says he’s identified.
Still, the charitable giving deduction reduction, which would limit deductions for couples making $250,000 or individuals making $200,000, provoked the most heat Thursday. Mr. Obama is counting on that provision to raise $179.8 billion over 10 years.
“Some of the reforms and offsets contained or referenced in the budget, such as the limitation on itemized deductions, raise concerns and will require more study as we determine the best policies for getting America back on track,” said Finance Committee Chairman Max Baucus, Montana Democrat.
Roberton Williams, senior fellow at the Tax Policy Center, said it’s impossible to calculate the exact effects of all the tax changes, but said the overall result is clear - less philanthropic giving.
“This will lead people to give less to charities if they behave the way they’ve behaved in the past,” he said. “We’ve already seen a drop in giving as a result of the economic collapse. On top of that, this will just reduce the amount of giving.”
Asked about that, Office of Management and Budget Director Peter Orszag said Mr. Obama took care of that by giving charities government money to make up part of the difference.
“Contained in the recovery act, there’s $100 million to support nonprofits and charities as we get through this period of economic difficulty,” he said.
He disputed that giving would drop, and said an economic recovery will help charities, too.
Many of Mr. Obama’s proposals broke down chiefly along party lines, meaning they have a good chance of passage with both the House and Senate controlled by his party.
Republicans lined up in opposition, praising Mr. Obama for some cost-cutting in Medicare but arguing he turns around and spends those savings on more government programs.
“I mean, basically, what’s happening here is we’re taking four steps back in the deficit fight, and then we’re only taking two steps forward,” said Sen. Judd Gregg, New Hampshire Republican.
Democrats cheered his plan to return the upper two tax brackets to the levels they were before Mr. Bush’s tax cuts and Mr. Obama’s plans to boost Pell Grants for low-income students to attend college. Republicans said the tax increases will hurt small businesses the most, killing job-creation, and protested making Pell Grants a new entitlement program, meaning Congress could no longer control yearly spending for it.
Mr. Obama’s goal of tackling greenhouse gas emissions may be tougher still. He is counting on raising $645.7 billion over 10 years by auctioning off carbon-emitting permits to polluters, and has given until 2012 before the program has to be up and running.
But cap-and-trade schemes have proved messy in places they’ve been tried, such as Europe, and Mr. Obama has left the details of the plan to be written by Congress, where Republicans may join with Democrats from industrial states to hamper his goal of an 80 percent reduction in emissions by 2050.
Another proposal, permanently indexing the alternative minimum tax for inflation so it doesn’t apply to middle-income earners, is popular with both parties - but so costly that Congress struggles each year to find money to do it.
Mr. Orszag told reporters they understand the challenge, but believe lawmakers will realize there’s no choice.
“I think you’re raising a fundamental question, which is we’re on an unsustainable fiscal course. There’s not a single line in the budget that won’t have someone who cares about it very strongly. And yet, if we allowed all of those lines to persist and grow over time, we would wind up with a fiscal crisis,” he said.
“We recognize that it is difficult to turn direction, to shift direction in the federal budget, but that’s absolutely what we need to do.”