Obama proposes $4.1 trillion spending plan in final White House budget

WASHINGTON (Reuters) - U.S. President Barack Obama proposed a $4.1 trillion spending plan for fiscal year 2017 on Tuesday in a final White House budget that met immediate Republican resistance for its cost and reliance on tax hikes to fund domestic priorities.

Obama, a Democrat who leaves office next January, sought to outline his fiscal and political vision for the country with proposed investments in infrastructure, cyber security, education, and job growth.

It also includes more than $11 billion for the Departments of Defense and State to fight Islamic State militants and stabilize Syria - one measure that could draw bipartisan support.

But the plan is primarily a political document and is unlikely to be embraced by the Republican-controlled Congress.

Paul Ryan, the Republican speaker of the House of Representatives, called it a “manual for growing the federal government at the expense of hardworking Americans.”

The budget envisions a deficit of $503 billion in fiscal 2017 after a $616 billion budget gap in the current fiscal year ending on Sept. 30.

It seeks to cut deficits by $2.9 trillion over 10 years largely through smaller tax breaks for wealthy earners, new savings in Medicare healthcare, and assumptions that adoption of its policies on immigration reform and other areas would boost economic growth.

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“The budget that we’re releasing today reflects my priorities and the priorities that I believe will help advance security and prosperity in America for many years to come,” Obama told reporters at the White House after a meeting with national security advisers on cyber security.

“It drives down the deficit. It includes smart savings on healthcare, immigration, tax reform,” he said.

The budget seeks $19 billion for cyber security investments across the U.S. government.

White House officials sought to play down the portrayal of the budget as dead on arrival in Congress. They noted bipartisan support for increases in funds for cancer research, opioid addiction programs and anti-poverty measures such as an expansion of the earned income tax credit (EITC), which helps low-income taxpayers.

Other proposals were clear non-starters, though, including one to levy a $10.25 per barrel tax on imported and domestically produced oil to fund transportation infrastructure such as mass transit and high speed rail.

“The president’s final budget continues his focus on new spending proposals instead of confronting our country’s massive overspending and skyrocketing $19 trillion in debt,” said Senate Budget Committee Chairman Mike Enzi.

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The budget forecasts that deficits would average 2.5 percent of U.S. economic output over 10 years compared to about 4.0 percent in the Congressional Budget Office’s estimate, which is based on existing tax and spending laws.

It stayed within the bounds of an agreement reached between the White House and Congress last year that lifted mandatory “sequestration” cuts on both defense and domestic spending.

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The budget proposes lifting the limits entirely from 2018.

Obama and Ryan agree on some anti-poverty policies, but the general differences between the two men and their parties are vast, particularly in a presidential election year.

Underscoring that divide and the fact that the budget is Obama’s last, Republican lawmakers took the unusual step of not inviting Obama’s budget director Shaun Donovan to brief about the proposal.

White House spokesman Josh Earnest, who has likened the snub to Republican presidential front-runner Donald Trump’s decision to skip a debate with fellow candidates before the Iowa nominating contest, challenged Republicans to move on areas of compromise.

“The question really for Republicans at this point is, are they going to do anything? Are they going to use their majority in Congress to strengthen our cyber security, to fight opioid addiction, to cure cancer, or are they not?” he said.

Congress can advance elements of the budget without endorsing the entire proposal.

Republicans are especially resistant to the White House’s tax proposals.

The budget takes aim at tax breaks for the wealthy that have been perennial targets, including the “carried interest” loophole allowing investment fund managers to treat income as capital gains. It would also increase the top tax rate on capital gains and impose the “Buffett Rule” to ensure that millionaires pay a tax rate of no less than 30 percent of their income after charitable contributions.

In addition, it proposes a new fee on the liabilities of the largest banks that would raise $111 billion over 10 years and discourage excessive leverage in the financial system.

The budget foresees $375 billion in new 10-year savings to federal healthcare programs, including several changes to the Medicare program for seniors.

The budget calls for $152 billion in research and development, an increase of 4 percent over fiscal year 2016.

Additional reporting by Ayesha Rascoe, David Shepardson, Susan Cornwell, Richard Cowan, and Julia Edwards