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February 1, 2010 Monday 4:18 PM EST
SECTION: NEWS & COMMENTARY; Economy and Politics
LENGTH: 499 words
HEADLINE: Obama budget lets Bush tax cuts expire
BYLINE: Robert Schroeder, MarketWatch mailto:firstname.lastname@example.org.
Robert Schroeder is a reporter for MarketWatch in Washington.
WASHINGTON (MarketWatch) — Facing a gaping deficit but aiming to spur job creation at the same time, President Barack Obama’s fiscal year 2011 budget would hit top earners, oil companies and others while giving tax breaks to small businesses to help them hire new workers.
Obama submitted the $3.8 trillion budget plan to Congress on Monday, beginning an annual process of hearings and setting off a debate over spending priorities with newly emboldened congressional Republicans.
With job creation his top priority as the U.S. grapples with 10% unemployment, Obama proposed a $100 billion jobs package that includes a $5,000 tax credit for hiring new employees. The budget also proposes extending for one year the Making Work Pay tax breaks, valued at $400 a person and $800 a couple. The tax cuts, a key proposal of Obama’s presidential campaign, were due to expire at the end of this year.
The budget foresees a deficit of $1.6 trillion for 2010 before it begins to decline, and the White House has set its sights on the wealthy and big companies to make up the shortfall.
Obama wants tax breaks proposed by President George W. Bush to expire this year. His budget would eliminate tax breaks on those making more than $250,000 a year, a move almost certain to be opposed by Republicans and perhaps some Democrats as the economy crawls out of the recession.
“We extend middle-class tax cuts in this budget,” Obama said Monday at the White House, but “we will not continue costly tax cuts for oil companies, investment fund managers, and those making over $250,000 a year. We just can’t afford it.”
Obama’s budget lands at the beginning of an election year that’s projected to be tough for Democrats. Congressional Republicans, buoyed by the win of Scott Brown in a special election for a Senate seat from Massachusetts, are likely to fight Obama hard over the budget.
Given the political outlook, Democrats may choose to delay the tax hikes, said Clint Stretch, managing principal for tax policy with Deloitte Tax, in Washington.
“I don’t see anything in the Democratic Party that says they’re not comfortable raising the top tax rates to the level they were in the Clinton administration. That does not mean they won’t avail themselves of the ‘we’re still recovering’ notion and say those should be effective in 2012 rather than 2011,” he said. “That might be one of the big fights coming here. The House might say 2011; the Senate may have more difficulty with it.”
Oil companies would lose $39 billion in tax breaks and the budget would raise $24 billion over the next decade by closing a loophole for certain investment managers.
The budget also includes new tax cuts for investing in small businesses and tax breaks for retrofitting homes to save energy, Obama said Monday.
Big banks also face a fee under the budget that would put about $90 billion in government coffers.
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