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Retirement Planning > Retirement Investing

Obama budget steps up retirement provisions

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(Bloomberg) – U.S. President Barack Obama’s budget will propose tax cuts for low-income families, a retirement savings plan and ask Congress to make permanent certain tax breaks to offset the cost of higher education.

The Obama administration yesterday released excerpts of the president’s $3 trillion-plus fiscal 2015 budget to be sent to lawmakers today. It will call for $56 billion in new spending for repairs of roads and bridges, job training and preschool education.

“We’ll pay for every dime of it by cutting unnecessary spending, closing wasteful tax loopholes,” the president told the Democratic National Committee in a speech Feb. 28. Details weren’t specified.

The sixth budget of Obama’s presidency comes more than a month late and eight months before the midterm congressional elections. It represents a snapshot of his political priorities and is designed to give Democratic lawmakers a platform for their re-election campaigns.

At the same time, it serves as a contrast to congressional Republicans, who’ll block the Obama budget from adoption and likely offer one of their own.

The $56 billion in spending would be on top of a budget agreement hammered out in December with Republicans. Starting in the year that begins Oct. 1, the money would be split equally between the Defense Department and domestic programs. It envisions building more manufacturing technology hubs to boost jobs skills, helping localities battle climate change and expanding programs to reduce energy waste.

Low-income credits

The excerpts include plans to strengthen the existing earned income tax credit by extending it to childless adults and young workers. The White House says the program would be a work incentive and help lift millions of people out of poverty.

Obama will also propose an expansion of the child and dependent care tax credit targeted at families with children under five years old. Details weren’t spelled out, but the excerpts said it would benefit about 1.7 million families who’d get an average tax cut of more than $600 a year.

The president will also encourage people to begin planning for retirement by establishing a system of Individual Retirement Accounts for people who don’t have them available through their employers, an estimated 13 million people.

In education, the budget will propose a permanent extension of the American Opportunity Tax Credit that would benefit about 11.5 million families and students with an average of more than $1,100 to help offset college costs. Other proposals would simplify tax treatment of 9 million Pell grant recipients and offer a tax break to student loan borrowers under certain conditions.

Republican alternative

Congress has already set spending limits for 2015, damping the impact of Obama’s plan. While House Republicans may write an alternative budget, the Democratic-controlled Senate has no plans to do so, according to Senator Patty Murray, chairman of the Budget Committee, who worked out the compromise that already passed.

Representative Paul Ryan, Republican of Wisconsin and chairman of the House Budget Committee, is looking to revamp almost 100 anti-poverty programs that he says encourage people to remain on welfare.

“For too long, we have measured compassion by how much we spend instead of how many people get out of poverty,” said Ryan, the Republican vice presidential nominee with Mitt Romney in 2012. “We need to take a hard look at what the federal government is doing and ask, ‘Is this working?’”

Income inequality

That stance may be a counterweight to Obama and congressional Democrats making the battle against income inequality a centerpiece of the 2014 elections. The Democratic efforts are illustrated by proposals to raise the federal minimum wage to $10.10 per hour from $7.25 and extend long-term unemployment benefits.

Treasury Secretary Jacob J. Lew is scheduled to defend the administration’s budget in an appearance before the Senate Finance Committee tomorrow, followed by his testimony to the House Ways and Means Committee on March 6. Sylvia Mathews Burwell, head of the Office of Management and Budget, is scheduled to testify on Obama’s budget plan tomorrow before the House and Senate Budget committees.


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