Wisconsin Law Blog

Date: 3/3/2009

By STEPHEN OHLEMACHER
Associated Press Writer

WASHINGTON (AP) — White House Budget Director Peter Orszag on Tuesday defended President Barack Obama’s $3.6 trillion federal budget and its proposal to raise taxes on more affluent Americans.

“We have lived through an era of irresponsibility,” Orszag told the House Budget Committee. “Looking forward, we must change course.”

Lawmakers in both parties have questioned Obama’s call to reduce high-income earners’ tax deductions for the interest on their house payments and for charitable contributions. Also drawing fire is his proposal to start taxing industries on their greenhouse gas pollution — a move sure to raise consumers’ electric rates.

Obama’s budget plan drew fire from a senior Republican, who called it the biggest expansion of government since President Franklin D. Roosevelt’s New Deal. Wisconsin Republican Paul Ryan told Orszag that administration claims of deficit-cutting are mostly bogus since the deficit would fall anyway as the war in Iraq winds down.

Ryan also warned that tax increases on small businesses earning more than $250,000 a year would stunt a possible recovery and that the plan would double the national debt in eight years.

Obama dispatched both Orszag and Treasury Secretary Timothy Geithner to Capitol Hill to defend the budget, with its proposed tax increases and the whopping $1.7 trillion annual budget deficit it would generate for 2009.

Geithner was to appear before the tax-writing House Ways and Means Committee.

Obama and his top aides have been promoting the budget package since unveiling an outline last week, but Tuesday provided lawmakers their first opportunity to publicly question top officials over details.

The one-year budget deficit for 2009 is 12.3 percent of the nation’s gross domestic product. That’s up from 3.2 percent in 2008 and the highest since 1945.

Orszag acknowledged the sheer enormity of the projected deficit. But, he told the Budget Committee, it would be “worse if we failed to act.”

Obama’s budget faces a difficult path through Congress because of its many controversial proposals on health care, taxes and global warming.

Meanwhile, Federal Reserve Chairman Ben Bernanke was generally supportive of Obama’s efforts to stimulate the economy.

Bernanke, who was appointed to the top Fed job in 2006 by then-President George W. Bush, told the Senate Budget Committee that Obama’s recently enacted $787 billion stimulus package of increased federal spending and tax cuts should help revive consumer spending, boost factory production and “mitigate the overall loss of employment and income that would otherwise occur.”

Still, the Fed chief warned that the timing and magnitude of the impact of the stimulus package is subject to “considerable uncertainty, reflecting both the state of economic knowledge and the unusual economic circumstances that we face.”

The Fed chief found himself challenged over the need for the government’s new $30 billion lifeline for ailing insurance giant American International Group. The latest plan, announced Monday, marked the government’s fourth effort to stabilize AIG.

“I share your anger,” Bernanke said. But he said the government had little choice but to take the action because the collapse of the insurance company would further rock the nation’s weakened economy.

Bernanke testified that an economic recovery depends on the government’s ability to stabilize weak financial markets.

The economy was taking another hit a day after the Dow Jones Industrial Average plunged below 7,000 for the first time since 1997.

An early rebound on Tuesday gave way to another round of selling by midday.

Obama insists he would impose higher taxes only on the wealthiest. Republicans, however, say Obama’s energy proposal amounts to a tax that would increase energy costs for all Americans.

“This massive hidden energy tax is going to work its way through every aspect of American life,” said Rep. Dave Camp of Michigan, the top Republican on the Ways and Means Committee. “How we light our homes, heat our homes and pay for the gas in our cars, in every phase of our daily lives, we will be paying higher costs.”

Obama wants to reduce the emissions blamed for global warming by auctioning off carbon pollution permits. The proposal, known as cap and trade, is projected to raise $646 billion over 10 years.

Most of the money would be used to pay for Obama’s “Making Work Pay” tax credit, which provides up to $400 a year to individuals and $800 a year to couples. The plan also would raise money for clean-fuel technologies, such as solar and wind power.

Orszag acknowledged that the energy proposal would increase costs for consumers, but he argues that the vast majority of consumers will get tax breaks elsewhere in Obama’s budget package.

Copyright 2009 The Associated Press.