Obama's Middle Class Tax Cut May Not Survive Budget

March 25, 2009 -- President Obama's budget chief hinted Wednesday that the president's signature campaign issue -- a middle-class tax cut -- will not likely survive a budget battle with Democrats on Capitol Hill.

On a conference call with reporters in advance of the president's trip to the Hill to speak before the Senate Democratic caucus, Office of Management and Budget Director Peter Orszag indicated that, while 98 percent of the budget mark-ups in the House and Senate are on par with the administration's budget blueprint, some campaign trail promises, like middle-class tax cuts, may get left on the cutting room floor.

The administration had tied the revenue raised from its environmental "cap-and-trade" proposal to the middle-class tax cuts -- known as the "Making Work Pay" tax credit for families -- both of which have been brought up as possibilities to be scrapped from the Senate and House budget resolution.

Obama's middle-class tax cut is locked in place for the next two years as part of the stimulus package he signed into law last month, but Orszag told reporters today that the White House will have to use those two years to figure out how to keep that tax cut in place for middle-class families beyond 2010.

Obama took his budget campaign to the Hill today to discuss his $3.6 trillion budget face to face with some skeptical Democrats, a day after he addressed the nation in a prime-time news conference.

Democratic leaders emerged from the 45-minute lunch expressing confidence that they will be able to work with the White House on provisions the president wants included in the budget.

The Senate will "protect President Obama's priorities -- education, energy, health care, middle-class tax relief and cut the deficit in half," said Senate Majority Leader Harry Reid, D-Nev.

"We have attempted to preserve -- and I think have preserved -- the president's key priorities," said Kent Conrad, D-N.D., the chairman of the Senate Budget Committee "All those are possible to move forward in the budget resolution I've written."

Reid said the budget will be passed next week.

Republicans on Capitol Hill have blasted the president's budget as too expensive and irresponsible because of the $7 trillion to $9.3 trillion national debt his proposals are projected to create during the next 10 years.

In his news conference yesterday, Obama had some strong words for his Republican critics.

"I suspect that some of those Republican critics have a short memory, because as I recall, I'm inheriting a $1.3 trillion deficit, annual deficit, from them," he said.

He challenged them to draft an alternate budget instead of simply criticizing his version. On Wednesday, Republicans responded to that challenge.

"Our nation is beginning to understand that the president has proposed the most fiscally irresponsible budget in the history of our nation," Rep. Mike Pence, R-Ind., said on the House floor. "In the coming hours, Republicans will unveil a better solution, to pass a budget built on fiscal responsibility and the principles of growth."

House Minority Whip Eric Cantor, R-Va., criticized Obama's budget for not having a clear focus and echoed Pence's statement that House Republicans will devise their own budget.

"The president knows that Republicans will have a budget plan that will be considered by the House, one that will set clear priorities, and focus directly on growing the economy and reducing health care costs," Cantor said in a written statement.

However, Senate Republicans plan to offer a series of amendments to the existing draft of the budget rather than a wholly alternative budget.

Pushing the Budget

Vice President Joe Biden set the stage for Obama's presence at the Senate Democratic Caucus luncheon this afternoon with a lunch meeting of his own with House Speaker Nancy Pelosi, D-Calif. Both expressed words of optimism, with Biden saying he expects the budget to be consistent with what the White House has asked for.

"I know at the end of the day, we will have a strong budget supportive of the president's principles," Pelosi said.

Obama also had Orszag begin a public effort to downplay differences between the president's budget and one being fashioned by Democratic leaders who are increasingly worried about the growing deficits.

Obama argued during Tuesday's news conference that he would cut the deficit in half in the next five years. But his plans for massive federal spending to bail out the economy along with his intention to take on such hefty projects like energy and health-care reform have left many on the Hill skeptical about what it will do to the country's budgets in the coming years.

Democratic allies in the House and Senate are busy rewriting Obama's proposed budget and the president hopes a personal appeal can save much of his blueprint.

In a conference call with reporters, Orszag depicted the differences between the White House budget and congressional versions as minor.

"I think it's very clear that if you look at the budget resolutions that are being adopted by both the House and Senate, they are from the same family as the president's budget. The resolutions may not be identical twins to what the president submitted, but they are certainly brothers that look an awful lot alike," Orszag said.

After taking questions from reporters about his budget and other economic plans for nearly an hour in front of a national audience Tuesday night, the president likely found more directly consequential audience today among House and Senate Democrats.

In the second press conference of his young presidency, Obama conveyed one singular message: Times are tough, but the good times will return.

He made the case that his budget is the best way to reduce the deficit and expand economic growth "by moving from an era of borrow and spend to one where we save and invest."

Key Pillars to Obama Budget

Even Senate Democrats Tuesday were talking about abandoning the president's hopes for an energy cap-and-trade system, which would exact a fine on polluters, and on extending his middle-class tax cut. But when asked by ABC News whether he would sign off on a budget if some of these key provisions he campaigned on were stripped out by Senate Democrats, the president was noncommittal.

"I've emphasized repeatedly what I expect out of this budget. I expect that there's serious efforts at health-care reform and that we are driving down costs for families and businesses, and ultimately for the federal and state governments that are going to be broke if we continue on the current path," the president said. "I haven't seen yet what provisions are in there. The bottom line is ... that I want to see health care, energy, education and serious efforts to reduce our budget deficit."

The four key pillars contained in his budget proposal are health care, energy reform, education and deficit reduction.

Obama said he was "confident" that the budget outline that will pass Congress will contain a blueprint for his principles on health care, energy and education reform and today, lawmakers resonated that confidence too, saying they play to include those provisions in the budget.

Economy Takes Center Stage

More than half of the 50-minute prime-time news conference was dedicated to the economy. Among the 13 questions reporters posed to him, none were about Iraq or Afghanistan -- a subject that dominated President George W. Bush's news conferences.

"I want to give everyone who's watching tonight an update on the steps we're taking to move this economy from recession to recovery, and ultimately to prosperity," Obama said in his 10-minute opening statement.

With his staff looking on as the president delivered his remarks in the East Room of the White House, Obama told Americans that with jobs, interest rates and lending, glimmers of hope appear on the horizon.

"We're beginning to see signs of progress," he said.

For every action his administration has taken, he described a positive economic result that had resulted from it so far. Some of the "signs of progress" he tied to his economic plans: The recovery plan has created jobs and provided a tax cut that 95 percent of Americans will start seeing in their paycheck by April 1; the administration's housing plan has led to a jump in refinancings; and restarting the flow of credit to families and businesses has already secured more lending in the last week than in four months combined, the president said.

The economy no doubt was the highlight of the news conference.

Even when asked by ABC News' Ann Compton whether race had played any role so far in the first 64 days of his historic presidency, Obama sang one note.

"I think that the last 64 days have been dominated by me trying to figure out how we're going to fix the economy, and that affects black, brown and white," he said.

He said that on Inauguration Day there was "justifiable pride on the part of the country that we had taken a step to move us beyond some of the searing legacies of racial discrimination" in the country but "that lasted about a day."

President Obama occasionally showed flashes of irritation when pressed on the delay in his response to the AIG bonus controversy.

"It took us a couple of days because I like to know what I am talking about before I speak," the president said in response to a question on why the state of New York seemed to be taking quicker action on AIG than the White House.

On Wednesday, the president is expected to send a draft legislation to the Hill that gives the Treasury more power to take over large financial institutions in serious trouble.

President Obama said his philosophy was persistence.

"You look back four years from now, I think, hopefully, people will judge that body of work and say, 'This is [a] big ocean liner; it's not a speedboat. It doesn't turn around immediately, but we're in a better -- better place because of the decisions that we made,'" he said.

Economy on President Obama's Mind

Even amid the optimism, President Obama cautioned Americans that recovery will take time and he called for continued patience from a recession-weary nation.

"We'll recover from this recession, but it will take time, it will take patience and it will take an understanding that, when we all work together, when each of us looks beyond our own short-term interest to the wider set of obligations we have towards each other, that's when we succeed, that's when we prosper and that's what is needed right now," the president said.

"It's important to remember that this crisis didn't happen overnight and it didn't result from any one action or decision," he said. "There are no quick fixes and there are no silver bullets."

The president also defended his administration's call for greater regulatory authority over failing financial institutions by pointing out that it was because of a lack of authority by the federal government that the AIG financial crisis happened.

"We should have obtained it much earlier so that any institution that poses a systemic risk that could bring down the financial system we can handle and we can do it in an orderly fashion that quarantines it from other institutions," he said.

Obama appeared to dial back some of the anger he has recently expressed at AIG for its handling of the executive bonus program and at other executives on Wall Street, but he did admonish them for the excess risk and reward.

"Bankers and executives on Wall Street need to realize that enriching themselves on the taxpayers' dime is inexcusable, that the days of outsized rewards and reckless speculation that puts us all at risk have to be over," he said.

Obama urged the American people to temper their outrage.

"At the same time, the rest of us can't afford to demonize every investor or entrepreneur who seeks to make a profit," he said. "That drive is what has always fueled our prosperity, and it is what will ultimately get these banks lending and our economy moving once more."

International Issues but Iraq, Afghanistan Not on Reporters' Agenda

Though the economy was the highlight of the night's discussions, Obama did respond to some questions related to global issues.

On the global financial crisis, the president expressed his confidence in the American dollar and said the reason it is performing well against other currencies is because "investors consider the United States the strongest economy in the world with the most stable political system in the world."

Obama said he did not believe there was a need for a global currency, pushing back against the suggestion by Chinese officials ahead of the G-20 financial summit next week in London.

While it was expected that the economy would dominate the news conference, it was noteworthy that Obama was not asked a single question about Iraq, a sharp departure from news conferences during the Bush administration.

He was also not asked about the announcement his administration is expected to make later this week on a new policy toward Afghanistan and Pakistan.

Part of that policy will be the addition of about 17,000 U.S. troops in Afghanistan by the end of August, to increase the presence there to about 64,000. The mission is to aggressively pursue al Qaeda and prevent it from maintaining a stronghold in Afghanistan.

The plan will call for U.S. forces to go after the Taliban only if they are providing a safe haven to and cooperating with al Qaeda.

Vice President Joe Biden and other senior foreign policy envoys have been consulting with allies as part of the administration's strategic review of its policies in Afghanistan and Pakistan.

The president was asked about his pledge to work for peace between Israel and Palestinians and whether he believes the realities of the situation -- with the emergence of the new conservative Israeli government -- have made that a harder quest.

"It's not easier than it was, but I think it's just as necessary. We don't yet know what the Israeli government is going to look like. And we don't yet know what the future shape of Palestinian leadership is going to be comprised of. What we do know is this -- that the status quo is unsustainable," he said.

The president added that it is critical to remain committed to a two-state solution where Israelis and Palestinians can live side by side.

"I'm a big believer in persistence," he said.

He applied this to the banks, lobbyists, pork-barrel projects and Iran -- taking some liberties with what his critics said.

"I think when it comes to the banking system, you know, it was just a few days ago or weeks ago where people were certain that [Treasury] Secretary [Tim] Geithner couldn't deliver a plan. Today, the headlines all look like, well, all right, there's a plan. And I'm sure there'll be more criticism and we'll have to make more adjustments, but we're moving in the right direction," he said.

"When it comes to Iran, you know, we did a video sending a message to the Iranian people and the leadership of the Islamic Republic of Iran. And some people said, 'Well, they did not immediately say they were eliminating nuclear weapons and stop funding terrorism.' Well, we didn't expect that. We expect that we're going to make steady progress on this front."

Obama's 'Dialogue With the American People'

The administration has shown a willingness to take the president out of Washington and have him speak directly to the American public, an apparent effort to maintain control of its economic message.

Last week, Obama traveled to California to participate in two town hall meetings.

While on the West Coast, he dropped by "The Tonight Show With Jay Leno," where he pitched his economic plans, talked about AIG and gave a glimpse of his family's new life in the White House. Obama also sat down in the Oval Office for an interview with "60 Minutes."

White House press secretary Robert Gibbs noted Monday that Obama's recent television appearances and travel allow him to "address directly with the American people the challenges that the country faces and the choices that he's working on with Congress to -- to put our economy back on track and put the nation back on firmer footing."

Obama used his first presidential news conference Feb. 9 to urge Congress to pass the stimulus plan and issued the harsh warning that a failure to act would worsen the economic crisis, calling it "not your ordinary, run-of-the-mill recession."

Nearly two months later, he has signed the stimulus legislation, has unveiled his plan to help homeowners, has rolled out a program for small-business loans and has provided a more detailed plan for bailing out banks of those toxic assets -- all key elements of his overall economic strategy that he pointed to Tuesday night.

ABC News' Huma Khan, Sunlen Miller, Martha Raddatz and Peyton Craighill contributed to this report.