The proposal aims for a compromise on the Fiscal 2014 budget by combining the president's demand for higher taxes with GOP insistence on reductions in what the Beltway calls entitlement programs.
The official, who spoke on a condition of anonymity to describe a budget that has yet to be released, said Obama would reduce the federal government deficit by $1.8 trillion over 10 years. The president's budget, the first of his second term, incorporates elements from his last offer to House Speaker John Boehner in December. Congressional Republicans rejected that proposal because of its demand for more than a $1 trillion in tax revenue.
A key feature of the plan Obama now is submitting for the federal budget year beginning Oct. 1 is a revised inflation adjustment called "chained CPI." This new formula would effectively curb annual increases in a broad swath of government programs, but would have its biggest impact on Social Security. By encompassing Obama's offer to Boehner, R-Ohio, the plan will also include reductions in Medicare spending, much of it by targeting payments to health care providers and drug companies.
Obama's budget proposal also calls for additional tax revenue, including a proposal to place limits on tax-preferred retirement accounts for wealthy taxpayers. Obama has also called for limits on tax deductions by the wealthy, a proposal that could generate about $580 billion in revenue over 10 years.
The inflation adjustment would reduce federal spending over 10 years by about $130 billion, according to past White House estimates. Because it also affects how tax brackets are adjusted, it would also generate about $100 billion in higher taxes and affect even middle income taxpayers.
The reductions in the growth of benefit programs, which would affect veterans, the poor and the older Americans, is sure to anger many Democrats. Labor groups and liberals have long been critical of Obama's offer to Boehner for including such a plan.
Administration officials have said Obama would only agree to the reductions in benefit programs if they are accompanied by increases in revenue, a difficult demand given the strong anti-tax sentiment of House Republicans.
That Obama would include such a plan in his budget is hardly surprising. White House aides have said for weeks that the president's offer to Boehner in December remained on the table. Not including it in the budget would have constituted a remarkable retreat from his bargaining position.
Obama's budget, to be released next Wednesday, comes after the Republican-controlled House and the Democratic-run Senate passed separate and markedly different budget proposals. House Republicans achieved long-term deficit reductions by targeting safety net programs; Democrats instead protected those programs and called for $1 trillion in tax increases.
But Obama has been making a concerted effort to win Republican support, especially in the Senate. He has even scheduled a dinner with Republican lawmakers on the evening that his budget is released next week.
House Republicans, however, have been adamant in their opposition to increases in taxes, noting that Congress already increased taxes on the wealthy in the first days of January to avoid a so-called fiscal cliff, or automatic, across the board tax increases and spending cuts.
Congress and the administration have already secured $2.5 trillion in deficit reduction over the next 10 years through budget reductions and with the end-of-year tax increase on the rich. Obama's plan would bring that total to $4.3 trillion over 10 years.
As described by the administration official, the budget proposal would also end a loophole that permits people to obtain unemployment insurance and disability benefits at the same time.
Obama's proposal, however, includes calls for increased spending. It would make pre-school available to more children by increasing the tax on tobacco.
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