Wednesday, March 11, 2009

Obama’s Budget Faces Test Among Party Barons


WASHINGTON — What the Democratic barons of Congress liked best about President Obama’s audacious budget was his invitation to fill in the details. They have started by erasing some of his. The apparent first casualty is a big one: a proposal to limit tax deductions for the wealthiest 1.2 percent of taxpayers. Mr. Obama says the plan would produce $318 billion over the next decade as a down payment for overhauling health care.

But the chairmen of the House and Senate tax-writing committees, Senator Max Baucus of Montana and Representative Charles B. Rangel of New York, have objected to the proposal, citing a potential drop in tax-deductible gifts to charities.

Billions in savings from cutting government subsidies to big farmers and agribusinesses? No dice, said Senator Kent Conrad of North Dakota, who heads the Senate Budget Committee.

Mr. Conrad also panned the limit on tax deductions. And his criticisms of those savings proposals aside, Mr. Conrad said Mr. Obama’s 10-year plan would not do enough to reduce future debt.

Shrink spending on Medicare, Medicaid and Social Security? Representative John M. Spratt Jr. of South Carolina, chairman of the House Budget Committee, suggested Mr. Obama’s proposals did not go far enough.

Cap industries’ emissions of the gases blamed for climate change? Representative Henry A. Waxman of California, who leads the House Energy and Commerce Committee, will have to contend with dissent on a panel with Democrats from coal and manufacturing states.

“The legislative process requires compromise and being open to different alternatives,” Mr. Waxman said.

Mr. Obama is taking a gamble in outsourcing the drafting of his agenda’s details to these five veteran lawmakers and others in Congress, each with his own political and parochial calculations.

“This is not an easy budget to market, for sure,” Mr. Spratt said.

He said he and other Democratic leaders would have to sell it one lawmaker at a time, but sell it they would. “Not every problem is a deal breaker,” Mr. Spratt said. “We will try and make corrections and accommodations.”

The process is like “a giant jigsaw puzzle,” Mr. Rangel said. “But it is going to come together.”

If the budget is to come together, the responsibility will be on the Democratic committee chairmen to deliver since most Republicans seem to have little appetite for the president’s proposals.

After a $787 billion economic stimulus package and a $410 billion appropriations measure for the current year, “Republicans feel like they can oppose this spending spree and this shifting of power from Main Street to Washington enthusiastically,” said Senator Lindsey Graham, a Republican from South Carolina to whom the administration has looked for bipartisanship. “It means the year could be an ideological struggle instead of a problem-solving year.”

The House and Senate are aiming to agree on a budget in April, but it will not require Mr. Obama’s signature.

Instead, that budget serves as a nonbinding blueprint for the committees — chiefly the Ways and Means and Finance panels — to write the legislation that Mr. Obama would sign into law. The changes he envisions for health care, energy, taxes, education, transportation and more have stymied Congress for years; in his budget, they come packaged together, and the resistance will be multiplied as a result.

The White House, meanwhile, is making clear that it is ready to push back, judging by its reaction to the strong resistance to its proposal to limit wealthy taxpayers’ deductions.

When Mr. Baucus, the chairman of the Senate Finance Committee, told Timothy F. Geithner, the Treasury secretary, soon after the Obama budget’s release that the administration must find a more “viable” source of revenue for its health care plan, Mr. Geithner expressed openness to other options.

The next day, however, Mr. Geithner staunchly defended the proposed limit, telling the House Budget Committee it would affect few taxpayers and still let them take deductions at the same level as in the Reagan years: a 28 percent rate, nearly twice what most taxpayers can claim.

The White House has sought to broaden that defense, emphasizing that the impact on charitable giving is likely to be small and that the proposal is hardly radical. Mr. Geithner has called it “fair and reasonable.”

Mr. Baucus, a veteran of 34 years in Congress, has welcomed Mr. Obama’s determination to overhaul health care this year. But he also has been drafting his own plan to contain costs and expand insurance coverage, putting him in potential conflict not only with the White House, but also with Senator Edward M. Kennedy, Democrat of Massachusetts and the chairman of the Senate health committee.

For instance, Mr. Baucus has suggested that one way to raise money would be to tax as income the value of the health insurance some employees get on the job, an approach Mr. Obama attacked when Senator John McCain, his Republican rival for the presidency last fall, proposed it.

For Mr. Conrad and some other Democrats, the political problem is that the upfront costs of health care reforms are huge while the promised cost savings are years in the future.

“When people say we won’t see the results of any of that spending for 10 years, I become skeptical,” Mr. Conrad said.

Early meetings of representatives of his Budget Committee and the Senate’s finance and health committees, Mr. Conrad said, have made for “very lively debates.”

As difficult as addressing health care will be, the energy issue may prove even more contentious and from the perspective of many lawmakers is the element of the administration’s agenda most likely to be set aside temporarily if a major initiative must be sacrificed to push through other programs.

To spur development of alternative energy, reduce dependence on foreign oil and help arrest climate change, Mr. Obama proposes a cap-and-trade system after 2011 that would require polluting industries to buy permits to emit carbon dioxide and other heat-trapping gases. Because companies would pass on the costs to customers, most of the revenues from auctioning permits would go to payments to low-wage and middle-income workers to offset their higher utility bills and other expenses. The rest would pay for alternative energy programs.

Republicans are already digging in against Mr. Obama’s approach, opposing both mandates that businesses buy pollution permits, and the idea of tax refunds to workers who earn too little to pay income taxes.

Democrats have their own divisions on energy legislation. Further complicating matters is the fact that Mr. Rangel, who will have to share responsibility for health care with Mr. Waxman, wants his panel to have a piece of the energy policy fight as well. Both men say they can resolve such territorial disputes.

“We are going to have to work out whatever issues there are,” Mr. Waxman said.

# Need a Real Sponsor here
MARCH 10, 2009
The Charity Revolt
Liberals oppose a tax hike on rich donors.

* Article

Among those shocked by President Obama's 2010 budget, the most surprising are the true-blue liberals who run most of America's nonprofits, universities and charities. How dare he limit tax deductions for charitable giving! They're afraid they'll get fewer donations, but they should be more concerned that Mr. Obama's policies will shove them aside in favor of the New Charity State.

What did these nonprofit liberals expect, anyway? Mr. Obama is proposing a vast expansion of the entitlement state, and he has to find some way to pay for it. So logically enough, one of his ideas for funding public welfare is to reduce the tax benefit for private charity. His budget proposes to raise the top personal income tax rate to 39.6% in 2011 from 35%, and the 33% rate to 36% while reducing the tax benefit from itemized deductions for the top two brackets to 28% from 35% and 33%, respectively. The White House estimates the deduction reduction will yield $318 billion in revenue over 10 years.

From the Ivy League to the United Jewish Appeal, petitions and manifestos are in the works. The Independent Sector, otherwise eager to praise the Obama budget, worries the tax change "could be a disincentive to some donors." According to the Center on Philanthropy at Indiana University, total itemized contributions from the highest income households would have dropped 4.8% -- or $3.87 billion -- in 2006 if the Obama policy had been in place. That year, Americans gave $186.6 billion to charity, more than 40% from those in the highest tax bracket. A back of the envelope calculation by the Tax Policy Center, a left-of-center think tank, estimates the Obama plan will reduce annual giving by 2%, or some $9 billion.

In defense, White House budget chief Peter Orszag wrote on his blog: "If you're a teacher making $50,000 a year and decide to donate $1,000 to the Red Cross or United Way, you enjoy a tax break of $150. If you are Warren Buffet or Bill Gates and you make that same donation, you get a $350 deduction -- more than twice the break as the teacher." This Administration wants to turn even philanthropy into a class issue.

Mr. Orszag revealed the real agenda at work when he pointed out that the money taken from the "rich" would be used to fund such Obama state-run charities as universal health care. The argument is that any potential declines in private gifts, whether to universities or foundations, will be balanced by increases in government grants paid with higher taxes -- redistribution by another means. This is how Europe's welfare state works: Taxes are so high that private citizens have come to believe it is only the state's duty to support cultural institutions and public welfare. The ambit for private giving shrinks.

America has always operated on a different philosophy, going back to Tocqueville's discovery of thousands of private associations that sustained communities without a commanding state. We doubt that a tax benefit is what drives most giving even today. The exception may be the confiscatory death tax that drives many of the superrich to form foundations to avoid the tax. But we suspect that without the death tax the wealthy would give even more of their income away.

Americans of all income levels have long given generously, notably in the 1980s as income tax rates fell and the economy boomed. Over the last five decades, American giving overall has hardly deviated from 2% of personal income, according to the Tax Foundation. In an ideal world, the U.S. would eliminate most tax deductions, including the one for charity, in return for a simpler, flatter tax that would help create more wealth to give away. With his many new income-limited tax credits and deduction phase-outs, however, Mr. Obama is sprinting in the opposite direction.

Meanwhile, the White House may have underestimated the power of the liberal nonprofit lobby. The charity deduction cut is the only one of the President's many tax increases that Democrats on Capitol Hill have publicly criticized. Politics hath no fury like a rich liberal scorned.

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