Obama Shifts Course with $3.5 Trillion Budget

President's budget proposes $989 billion in new taxes during the next 10 years.

Feb. 26, 2009— -- President Obama's $3.5 trillion budget proposal, the largest in history, presents a dramatic break from policy and a shift in governmental priorities. The administration is attempting to redirect vast sums of money from businesses and wealthier individuals to those with lower incomes and enact ambitious and costly new programs for energy, education and health care.

"I don't think that we can continue on our current course," Obama said in his remarks about the budget submitted to Congress this morning. "I work for the American people, and I'm determined to bring the change that the people voted for last November. And that means cutting what we don't need, to pay for what we do."

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The president says the budget proposal, entitled "A New Era of Responsibility: Renewing America's Promise," marks a departure from the past and makes tough choices about how to spend taxpayer money.

"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," he said.

Obama's change begins with new priorities as outlined in his 2010 budget proposal, including $770 billion in tax cuts during the next 10 years for the middle-class, $150 billion for alternative energy sources and $634 billion for a health care reserve fund to pay for health care reform.

Much of the spending is being done with money the government does not have, creating a $1.75 trillion deficit next year alone.

"The president's beginning to make President Bush look like a piker when it comes to spending," House Minority Leader Rep. John Boehner of Ohio said.

Almost $1 trillion of the spending, $989 billion, comes from new taxes during the next 10 years. When the Bush administration's tax cuts expire at the end of 2010, new tax increases will target families earning more than $250,000 a year.

Obama's proposal will generate $636 billion in new taxes, $338 billion from allowing the Bush income tax cuts to expire, but also by increasing the capital gains tax and lowering the deduction for charitable giving.

White House Says New Tax Hikes Won't Hinder Economic Growth

Peter Orszag, director of the Office of Management and Budget, defended the reduction, saying that the stimulus provides $100 million for charities and that a tax hike on charitable giving will not discourage wealthy Americans from giving donations.

"The recovery itself will provide a strong boost not only to charities, but to the overall economy and to the people who contribute to charities," he said today.

Obama will also push an additional $353 billion in new tax hikes on businesses.

"The president … believes that the changes that this budget would require in the tax code are good for the American people," White House Press Secretary Robert Gibbs said. "The president doesn't believe that the changes that are being made would hinder economic growth."

On Capitol Hill, Obama's former commerce secretary nominee, Sen. Judd Gregg, R-N.H., disagreed.

"So, if you've got a restaurant or you have a small business and you're getting hit now with a tax rate that's going to jump from 35 percent up to 41 percent. Well, where do you, where do you pay for that? You lay people off," he said.

The budget released today was an overview of the more detailed document to be released in April. The president has said that when the full budget is developed, the administration will carefully and critically review it, line by line, to eliminate inefficiency.

"A budget is more than simply numbers on a page," Obama said. "It is a measure of how well we are living up to our obligations to ourselves and one another. It is a test for our commitment to making America what it was always meant to be: a place where all things are possible for all people. That is a commitment we are making in this, my first budget, and it is a commitment I will work every day to uphold in the months and years ahead."