Obama Puts $3.6 Trillion Where His Mouth Is
President Obama presented his budget and left no doubt that he was being serious when he promised change. The $3.55 trillion spending plan included broad goals and few details but outlined how Obama plans to finance more spending in health care, energy, and education while increasing taxes on the top 5 percent of taxpayers, the oil and gas industry, and hedge-fund managers, among others. In short: Bye-bye, Reaganomics. The 134-page budget "is unprecedented in size, breathtaking in scope and sure to have a major impact on millions of Americans," declares USA Today. The Wall Street Journalnotes that the spending plan "marks a significant change in nearly 30 years of governing philosophy."
The Washington Post declares that "Obama's agenda seeks to foster a redistribution of wealth, with the government working to narrow the growing gap between rich and poor." In order to achieve this, though, Obama "laid down controversial markers on almost every major issue facing the country," notes the Los Angeles Times. The WSJ predicts that the spending plan "is likely to herald one of the fiercest political fights Washington has seen in years." R epublicans were quick to raise their objections yesterday, and in what was clearly a "worrisome sign for the president," as the New York Times puts it, Sen. Olympia Snowe * of Maine, one of the few Republicans who voted for the stimulus package, declared that while the president's goals are "worthy" she lamented that the budget "falls woefully short" on fiscal restraint and reducing the deficit.
The budget made it clear that changing the way Washington works doesn't come cheap. This year's deficit would reach $1.75 trillion, which amounts to more than 12 percent of the economy and is the highest level since 1945. The administration says it will begin to trim the deficit, partly by reducing the costs of fighting the Iraq war but also "by assuming a rate of economic growth by 2010 that private forecasters and even some White House advisers consider overly rosy," points out the NYT. The White House was quick to counter criticism saying that it plans to raise taxes during a recession by pointing out that none of the increases would take effect until 2011. Still, some economists think that might be too early and could hurt the economy. And while the administration insists it plans to halve the deficit by the end of Obama's first term, analysts said the budget doesn't contain a plan to keep bringing it down in the long run.
The blueprint presented by Obama yesterday left many unanswered questions, a lot of which will presumably be answered in April, when the president is due to hand in his complete budget. The NYT highlights that the plan "was light on proposals to cut spending," but some of the ones that were included "underscore the change he seeks." For example, Obama would cut much of the subsidies that private banks get for providing student loans and instead would plow more money into government Pell Grants. The WSJ points out that Obama intends to transform the grants "into an automatic 'entitlement' program … rather than one that Congress approves annually."
A big chunk of the financing for these new plans would come from an increase in taxes. "Affluent Americans head the president's list of losers," declares the WSJ. The WP specifies that Obama plans on "levying nearly $1 trillion in new taxes over the next decade on the nation's highest earners," which includes singles earning $200,000 and $250,000 for families. These Americans would see an increase in their income-tax rates, a reduction in the number of itemized deductions they can take, and higher taxes on their investments. Hedge-fund managers in particular would experience a big hit since their earnings would be taxed as income rather than capital gains, which means their tax rate could reach as high as 39.6 percent from the current 15 percent. Many corporations would also see an increase, particularly those used to deferring U.S. taxation on profits that are kept abroad. Oil and gas companies would also be particularly hard-hit since they would lose a number of tax breaks.
The NYT, LAT, and WP all front an analysis (the NYT has two!) of the budget that come down to one simple message: This is very ambitious and very risky. The LAT points out that during the campaign and the first weeks of his presidency, "Obama often staked out positions so general or nuanced that voters often inferred that he agreed with them even though he had not quite said so. … That stage of his presidency appears to be ending." Obama has now made it clear he's ready to spend his political capital on his priorities. By proposing such a large and complex program, Obama "is now gambling with his own future and the success of his presidency," declares the WP. The NYT agrees, and calls the budget "a political gamble of the first order." Few presidents have ever tried something of this scope, and pulling it off "will require not just a bold vision but also leadership of a kind he has not yet been required to demonstrate," adds the Post. While it's clear that "the Reagan paradigm of conservative governance has taken a beating," does that mean the country is "ready for government activism of the size and scope he has proposed?"
In a front-page piece, the NYT's David Leonhardt calls the plan "a bold, even radical departure from recent history." Leonhardt explains that the U.S. economy in the last 70 years can basically be divided into two periods. After World War II, there was a decline in inequality, which then rose over the past 30 years. "Obama is setting out to begin a third period that looks more like the first than the second."
The NYT fronts late-breaking news that Citigroup and the Treasury Department reached a deal late last night that would have the U.S. government take somewhere between a 30 percent to 40 percent stake in the banking giant. The WSJ also fronts the news but went to press before the deal was reached and doesn't include as many details as the NYT. The deal is expected to be announced today. Chief Executive Vikram Pandit will continue to lead Citigroup but the banking giant would have to change its board so it's comprised of a majority of independent directors.
The government has agreed to convert as much as $25 billion of its preferred stock in Citigroup into common stock, but how much will depend on whether Citigroup can get other private investors to follow the same path. "The Treasury Department will match the private investors' conversions dollar-for-dollar," explains the NYT. The WP hears word that the government would end up owning about one-third of the company. Although the deal wouldn't involve any new taxpayer money, the government would be giving up dividend payments. Conversely, taxpayers could ultimately benefit if Citigroup turns around and its shares rise. It's "one of the most drastic steps federal officials have taken to prevent the collapse of an institution deemed 'too big too fail,' " points out the NYT, which also notes the deal could serve as a blueprint for other ailing financial institutions.
The WSJ couples its Citigroup story with the British government's decision to take the Royal Bank of Scotland "to the brink of nationalization." As RBS announced the "largest loss in British corporate history," the government agreed to a series of moves that could give it as much as a 95 percent stake in the bank.
Daniel Politi has been contributing to Slate since 2004 and wrote the "Today's Papers" column from 2006 to 2009. You can follow him on Twitter @dpoliti.