Factbox: Political roadblocks to Obama's budget

(Reuters) - President Barack Obama faces major hurdles to get his $3.8 trillion budget plan through Congress. Obstacles include members of his own -- at times fractious -- Democratic Party.

Obama proposed and Congress ignored many of the same policies last year, though expiration of individual tax cuts enacted by former President George W. Bush at the end of this year virtually ensures individual tax issues will be addressed.

Below is a summary of roadblocks facing some of Obama’s key proposals.


Fulfilling a campaign pledge, Obama proposed extending the Bush tax cuts for individuals earning less than $200,000 and couples making less than $250,000. For those making more than that, Obama proposed letting the cuts expire. That would bring the top two income tax brackets back to 39.6 and 36 percent, from 35 and 33 percent respectively.

Some fiscally conservative Democrats in the House of Representatives have called for keeping the rates lower for at least two years to sustain the economic recovery.

Democratic Senate and House leaders are generally believed to back letting the lower rates expire for the upper income groups, although they have not addressed the issue recently.


Obama proposes raising the long-term capital gains and dividend tax rates back to 20 percent for those making more than $200,000 and couples at more than $250,000. Again, a small group of Democrats have called for a temporary extension of the 15 percent rate, citing the fledgling recovery.


Obama once again proposed taxing “carried interest” earned by hedge fund and private equity fund managers as ordinary income, which would boost the tax rate from 15 percent to typically the highest income bracket.

The proposal passed in the House late last year but has hit a roadblock among Democrats in the Senate.


Obama proposed limiting itemized deductions, including for mortgage interest, for those making more than $200,000 or couples making more than $250,000, to 28 percent of their income. This idea was proposed last year and met with fierce opposition -- from realtors, charities and members of both parties.


Obama’s proposed big bank tax is expected to face tough opposition from Republicans, who will likely try to shield some of the largest companies from a $90 billion tax spread out over 10 years. The tax, which is designed to recoup taxpayer losses associated with the financial bailout, is expected to be a target of intense lobbying from the financial industry.

House Republicans have already come out against the bank fee, saying it will simply drain capital from the banking industry and hurt lending. Even Warren Buffett, one of the world’s most respected investors and an Obama supporter, said the bank tax does not make sense, as big banks would be largely paying for the bailout of the automakers and AIG.


Obama proposed cutting farm subsidies and federal support of crop insurance by $10 billion over 10 years.

Farm leaders from both parties on Capitol Hill stated opposition to the cuts within hours of the proposal.

Agriculture Secretary Tom Vilsack offered to work with lawmakers to find an acceptable package of cuts, but lawmakers rejected similar cuts last year. Obama says the farm program should focus on family farmers and restrict subsidy payments to wealthy growers.


Liberal Democrats, including House Speaker Nancy Pelosi, have said Obama’s proposed freeze should also apply to military spending, which he exempted. House Appropriations Committee Chairman David Obey said he will stay within the overall spending limits suggested by the White House, but might allocate it in a different manner -- for example, more could be cut from the Pentagon’s budget to make way for more spending on transportation, environmental protection, or other domestic programs.


Obama proposed to end development of an alternate engine for the F-35 Joint Strike Fighter. The contractors are General Electric Co and Rolls Royce Group Plc.

Senate Armed Services Committee Chairman Carl Levin says enough may have been spent to justify finishing the job. John McCain, the top Republican on the panel, has sided with Obama and the Pentagon. Defense Secretary Robert Gates agreed to look into updating an independent analysis of the business case for the second engine.

Obama also proposed stopping production of Boeing Co’s C-17 cargo plane.

Lawmakers from both parties added $2.5 billion for 10 planes last year so it could be a tough sell. Some have said they will try to fund it again.

Gates has said he would make a strong veto recommendation to Obama if Congress tries to restore either program.

Reporting by Kim Dixon, Andy Sullivan, Chuck Abbott, Jim Wolf, and Karey Wutkowski in Washington; editing by Mohammad Zargham