Barack Obama’s $4tn wishlist for next year’s US budget was thrown into stark contrast with his diminishing leverage in Congress on Monday, acknowledging he still hasn’t persuaded lawmakers to fully fund the government this year.
The president announced details of his ambitious 2016 spending plan – which redistributes money from taxes on the rich and big business to middle-income families and infrastructure spending – in remarks at the Department of Homeland Security.
The venue was no accident, as it marks the one building in Washington not covered by legislation providing it with money for 2015. Republicans have only agreed a short-term spending deal for homeland security – in protest over Obama’s executive action on immigration – and the department is due to run out of funding within a matter of weeks.
The president used the setting to launch a blistering attack on Republicans, accusing them of putting national security at stake with the tactic. “Until they pass a funding bill, it is the end of a paycheck for tens of thousands of frontline workers who will have to work without getting paid,” he said. “Over 40,000 border patrol and customs agents. Over 50,000 airport screeners. Over 13,000 immigration officers. Over 40,000 men and women in the coast guard.”
Echoing his recent State of the Union address, Obama also argued the US was at a crossroads now that it had largely recovered from the financial crisis. “After a breakthrough year for America – at a time when our economy is growing and our businesses are creating jobs at the fastest pace since the 1990s, and wages are starting to rise again – we’ve got some fundamental choices to make about the kind of country we want to be,” he said.
But the president rejected arguments in favour of further fiscal belt-tightening, insisting existing deficit reduction was sufficient. “We can afford to make these investments while remaining fiscally responsible,” Obama added. “And, in fact, we cannot afford – we would be making a critical error if we avoided making these investments.”
Obama is expected to keep arguing that his political opponents should not only stop holding the budget process hostage in this way but embrace a dramatically more interventionist fiscal approach as well: Obama wants Republicans to abandon their emphasis on deficit reduction and use the tax code to address growing income inequality instead.
But Republicans, who now control both the House of Representatives and the Senate, have already indicated their rejection of large parts of Obama’s redistribution proposals, which House ways and means committee chairman, Paul Ryan, dismissed as “envy economics” on Sunday.
Republicans are also likely to balk at Obama’s limited effort to reduce the US budget deficit, which they argue needs to be eliminated much faster than his proposals which anticipate a $474bn deficit that will see government debt grow by $6tn, but fall as a percentage of the total US economy.
However, there is more realistic territory for the two sides to agree in White House proposals to reform corporate taxation, including a one-off 14% tax on untaxed foreign earnings multinational companies are shielding overseas.
That represents less than half of the current 35% top tax rate for corporations. But the White House predicts the 14% tax will raise $238bn, a sum it wants to immediately inject into a nationwide project to upgrade roads, bridges and public transport.
“These investments would be paid for by closing tax loopholes as part of reforming the business tax rules to level the playing field and make sure everyone pays their fair share,” a White House official said on Sunday, speaking on the condition of anonymity.
Major corporations such as Apple, Google and Microsoft have been avoiding the 35% corporation tax on earnings repatriated to the US by stockpiling earnings overseas in low-tax jurisdictions such as Bermuda and Ireland.
The White House’s proposed one-off tax on companies with earnings overseas would be a “mandatory tax on previously untaxed foreign earnings, regardless of whether the earnings are repatriated”, the official said. In total, the White House plans to invest $478bn in road infrastructure over six years through the Highway Trust Fund, around half of which would be paid for from the one-off tax.
Republicans have signalled they are open to finding a way to tax earnings stored overseas by big corporations, and have explored similar ideas. They are also in favour of boosting money for road-building – one of the few areas of government spending they are willing to see increase.
In addition to the one-off levy to pay for infrastructure improvements, Obama will call for a 19% corporation tax on all future earnings, the White House official said.
“After this initial payment, foreign earnings could be reinvested in the US without additional tax, which would level the playing field, and encourage firms to create jobs here at home,” the official said.
“The president’s proposal also includes other loophole closers that crack down on corporations that shift profits to tax havens to avoid paying their fair share or take advantage of so-called ‘inversions’ to avoid paying US taxes.”
Much of the budget plan is likely to be shot down by Republican leaders, but the budget represents an opportunity for Obama, who wields a presidential veto, to draw lines in the sand ahead of tax-and-spend negotiations.
Following his populist State of the Union address last month, which was characterised by his opponents as a Robin Hood-style attack on wealth inequality, Obama is expected to offer an array of spending programmes and tax increases in his budget, to bring “middle-class economics into the 21st century”.
