Obama calls for higher taxes on the wealthiest

 

PRESIDENT BARACK Obama has called for higher taxes on the richest Americans, a $634 billion (€497 billion) “downpayment” on universal healthcare and a further $750 billion to bail out financial institutions.

The proposals would comprise part of a $3.6 trillion (€2.8 trillion) budget blueprint that would drive the federal budget deficit above 12 per cent of the country’s economic output.

The plan would boost the role of government in US society in a way that has not been seen since before the era of Ronald Reagan, shifting energy use away from oil and gas and investing heavily in education.

Introducing the plan, which he hopes will form the basis for a budget to be approved by Congress in April, Mr Obama said it represented an honest accounting of what his government planned to do and how much it would cost.

“For too long, our budget has not told the whole truth about how precious tax dollars are spent. Large sums have been left off the books, including the true cost of fighting in Iraq and Afghanistan,” he said.

“And that kind of dishonest accounting is not how you run your family budgets at home; it’s not how your government should run its budgets, either. We need to be honest with ourselves about what costs are being racked up – because that’s how we’ll come to grips with the hard choices that lie ahead.”

The president repeated his pledge to “end tax breaks for corporations that ship jobs overseas” but the 134-page budget outline offers no details of such a move, although it envisages a $210 billion (€165 billion) saving from implementing “international enforcement, reform deferral and other tax reform policies”.

In its only other reference to international taxation, the document says the Internal Revenue Service (IRS) will improve its efforts to collect tax owed overseas. “The scope, complexity, and sheer magnitude of the international financial system pose significant enforcement challenges for the IRS in carrying out its tax administration responsibilities,” it notes.

“The 2010 budget includes funding for a robust portfolio of IRS international tax compliance initiatives, and sustains and improves IRS efforts to narrow the annual tax gap of over $300 billion (€235 billion).”

American trade unions have long campaigned for the repeal of a 2004 law that allows US companies to reduce or defer US tax obligations when they move income or operations abroad. The legislation was introduced in response to a threat of sanctions from the European Union, which argued that without such an arrangement, the US was in breach of World Trade Organisation (WTO) agreements.

Mr Obama said earlier this month that any policy changes he introduces would comply with WTO rules, a commitment that could limit his scope in seeking changes to the 2004 law.

House Republican chief whip Eric Cantor condemned the budget as “not just misguided but dangerous” in seeking to raise taxes during an economic downturn, but Mr Obama insisted that most tax increases would take effect after the economic recovery begins.

The president’s spending plans would push the 2009 budget deficit to $1.75 trillion (€1.37 trillion), or 12.3 per cent of the country’s annual gross domestic product, the biggest percentage since 1945.

Mr Obama has promised to cut the deficit in half by the end of his first year and he said yesterday that officials had already identified cuts in wasteful or ineffective federal programmes that would save $2 trillion within four years.

“We will, each and every one of us, have to compromise on certain things we care about, but which we simply cannot afford right now. That’s a sacrifice we’re going to have to make,” he said.

“Now, I know that this will not always sit well with the special interests . . . who think our budget and tax system is just fine as it is. No wonder – it works for them. I don’t think that we can continue on our current course. I work for the American people, and I’m determined to bring the change that the people voted for last November.”

Although the president yesterday stressed increased investment in healthcare, education and alternative energy, his budget also envisages a 4 per cent increase in the defence budget next year, although the Pentagon would only receive 2 per cent increases in subsequent years.

Mr Obama asked for an additional $75 billion (€59 billion) to cover the costs of the wars in Iraq and Afghanistan until September, the end of the current budget year, $130 billion (€102 billion) for the two wars in 2010 and estimated the cost of the two wars at $50 billion (€39 billion) annually in subsequent years.

In a separate development, the Pentagon said it would lift a ban imposed by former president George Bush on media photographs of the flag-draped coffins of US soldiers returning from Iraq and Afghanistan for burial.

MAIN POINTS

$634 billion(€497bn) “down payment” on universal healthcare, paid for by higher taxes on top earners and cuts in federal payments to hospitals, insurance providers and pharmaceutical companies.

$750 billion(€588bn) in further spending to rescue troubled financial institutions.

$130 billion(€102bn) for wars in Iraq and Afghanistan in 2010.

Increased spending on education and alternative energy.

$210 billion(€165bn) in savings from enforcing international tax obligations and curbing tax breaks for US-based multinationals on overseas earnings.