Wealth trumps reform in budget vote

President Obama’s first budget, unveiled with great fanfare two months ago, started out like a plan that Robin Hood would love: He proposed taxing the wealthy to ease the burden on the middle class.

But so far, Congress has not rushed to follow his lead.

The House and Senate approved a $3.5-trillion federal budget outline Wednesday that embraces, in general terms, Obama’s top priorities in healthcare, energy and education. But lawmakers have turned a cold shoulder to many of the president’s proposals to shift wealth and federal subsidies from the rich to the less affluent.

Congress has called for ending Obama’s signature campaign promise to the middle class -- tax credits of as much as $800 for many families -- after two years. And lawmakers did not endorse his proposal to curb tax deductions for the upper class to help pay for healthcare reform, but did keep in place billions of dollars in subsidies to agriculture.

Much of the debate in the House and Senate has focused on GOP charges that Democrats would tax and spend too much, creating a projected deficit of $1.2 trillion in 2010 and laying a debt burden on generations to come.

“Generational theft,” Sen. John McCain (R-Ariz.) called it.

Democrats responded that the budget was their best effort to address the economic problems that President Bush left behind.

Obama “inherited this mess,” said Senate Budget Committee Chairman Kent Conrad (D-N.D.). “He’s expected to clean it up.”

In the end, no Republicans in either chamber voted for the budget resolution. But underlying the predictable partisan byplay, the budget debate has been a monument to the durability of the special interests and political forces that make it hard even for Democrats to curb subsidies to the wealthy.

“When you listen to the debate, it’s clear that there is a lot of resistance to a lot of the things Obama did,” said James R. Horney, a budget analyst with the liberal-leaning Center on Budget and Policy Priorities.

Coming just three months after Democrats took the White House and retained control of Congress, the budget represented the party’s first stab at changing government priorities after years of complaints that GOP policies were unfairly skewed to the wealthy.

The budget blueprint passed 233 to 193 in the House, with 17 Democrats joining the opposition. The Senate vote was 53 to 43, with three Democrats voting against the bill. The opponents included Sen. Arlen Specter of Pennsylvania, who announced Tuesday he was leaving the Republican Party to become a Democrat.

The measure is a nonbinding spending blueprint that Obama does not need to sign. It sets the spending levels that appropriations committees must observe. Its provisions -- and omissions -- point to areas where Obama faces a tough sell.

One of the most important questions that the budget sidestepped has to do with how Congress will cover the cost of making health insurance available to more Americans and of overhauling the healthcare system.

Obama had proposed covering part of the cost by imposing a 28% cap on the value of tax deductions -- including write-offs for charitable donations and home mortgage interest -- for families earning more than $250,000 a year.

That idea has been bitterly opposed by two of the most powerful lobbies in Washington, the home-building industry and the charitable nonprofit sector. They fear that the wealthy will invest less in real estate and donate less to charities if Congress reduces the tax benefit.

Obama has defended the proposal as a matter of equity: Under current law, tax deductions are worth less to middle-class taxpayers than they are to wealthier people. For example, a middle-class bus driver gets only a 28% write-off for a $100 donation; someone in the upper income brackets gets 33% or more for the same donation.

Nonetheless, Obama’s proposal is destined to fail, said Roberton Williams, a fellow at the nonpartisan Tax Policy Center. “It sets up two groups to be the fall guys, and that mobilizes two fairly strong lobbies,” he said.

Meanwhile, middle-class voters face the prospect of losing Obama’s “Making Work Pay” tax credit -- of as much as $400 for individuals and $800 for couples -- after 2010.

The budget resolution did not make room for a longer extension of the tax break. Democrats said they had to impose that limit, at least for now, in deference to the worsening budget outlook.

But two other powerful constituencies, agribusiness and military veterans, were not asked to make such a sacrifice.

The congressional budget did not incorporate Obama’s proposal to cut off subsidies to farms with sales exceeding $500,000 a year, a move that bowed to the agriculture lobby and influential rural lawmakers, including the Senate Budget Committee’s Conrad.

Veterans protested a proposal floated by the administration that would have allowed the government to bill private health insurance companies for treatment of service-related injuries. Obama retreated.

Some Democrats even defected from Obama when it came to taxing the wealthiest Americans through the estate tax.

Obama wants to extend the current 45% rate, which applies only to inheritances exceeding $3.5 million for individuals and $7 million for couples. But the Senate, with the support of 10 Democrats, approved a proposal to lower the tax rate and raise the exemption.

The Senate plan would have cost $90 billion over 10 years for a tax break that would matter to only one-quarter of 1% of estates.

In the end, the Senate proposal for the lower tax rate was dropped during negotiations with the House.

The budget assumes that Obama’s proposal to extend the current estate-tax rate will be enacted. Still, the episode showed a hesitancy among some Democrats to tax even the wealthiest Americans.

Though the budget blueprint did not specify how to pay for a healthcare overhaul, it gave Obama’s health proposal a big lift: It authorized a procedural shortcut designed to circumvent Republican lawmakers if they attempt to block the measure by filibuster.

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janet.hook@latimes.com