Obama offers tax breaks for poor in election year budget

Budget proposes expanding Earned Income Tax Credit to cover some 13.5 million people

Published: March 4 2014 | 10:24 am - Updated: 1 April 2014 | 9:08 am in

WASHINGTON (Reuters) - President Barack Obama will propose new tax credits and job-training programs for U.S. workers on Tuesday in a 2015 budget that highlights a competing vision with Republicans who favor a reduced government role in promoting economic opportunity.

The proposed budget for the 2015 fiscal year that begins on October 1 would also create automatic retirement accounts known as IRAs for some 13 million workers.

Although the blueprint has little chance of getting enacted, it codifies the president's policy priorities ahead of November congressional elections, in which Democrats hope to keep control of the U.S. Senate and Republicans hope to expand their majority in the House of Representatives.

The budget signals a shift away from last year's emphasis on deficit cutting to a more pronounced focus on poverty reduction, a legacy-oriented goal the president is highlighting as he faces less than three years left in office.

The debate over Obama's controversial healthcare reform law is likely to feature prominently in the elections, but poverty reduction and Americans' slow recovery from the 2007-2009 recession will dominate as well.

House Budget Committee Chairman Paul Ryan, a potential Republican presidential contender in 2016, argued in a report on Monday that the government had barely made a dent in combating poverty over the past 50 years despite massive spending.

They disagree on government's larger role in poverty reduction, but Ryan and Obama share support for the Earned Income Tax Credit, an anti-poverty measure that is meant to encourage low-income Americans to work.

Obama's budget proposes expanding the program to cover some 13.5 million people who do not have children. It would also make the program available to younger workers who are not currently eligible, the White House said.

The expansion, which would cost $60 billion, would be funded by closing loopholes such as the tax break for "carried interest," profits earned by wealthy investors who run private equity and other funds.

Obama has long sought to end that tax break, which allows financiers to treat such income as capital gains, making it subject to a tax rate of only 20 percent, instead of the nearly 40 percent top rate on ordinary income paid by the highest earners.

Representative Dave Camp, the Republican chairman of the powerful House Ways and Means Committee, also proposed last month to "clean up" the carried interest deduction, but tax reform is not expected to get traction in Congress this year.

SAVINGS, NO OLIVE BRANCH

Obama's budget also puts an emphasis on saving for retirement. It proposes to create automatic Individual Retirement Accounts for those who do not have access to savings plans sponsored by employers.

"About 13 million workers would begin contributing to retirement savings through auto-IRAs as a result of this proposal," the White House said.

Obama will unveil the document during a visit to a local elementary school at 11:30 a.m. EST.

The White House signaled last month that its new budget would not extend the olive branch to Republicans that was offered in its proposal a year ago.

Officials said the president would drop a suggestion to change how the government calculates inflation for Social Security and other federal benefits that could have led to income drops for older Americans.

The change, which was unpopular with Obama's base, was meant to show Republicans the president was serious about deficit reduction. But the White House did not feel Republicans responded with a similar concession and dropped the idea.

Instead, the 2015 document will include proposals to boost spending on infrastructure projects, job training, and preschool education programs - all Democratic priorities.

It expands a tax credit to help parents pay for childcare, benefiting 1.7 million families, and makes permanent a tax credit related to paying for college education.

"The president's budget will show in real terms the choices we can make to expand economic opportunity and strengthen the middle class," the White House said.

The budget outlines how some $1.014 trillion will be spent on government agencies' discretionary programs ranging from the military to national parks. That level, roughly in line with this year's cap of $1.012 trillion, was set by a recent budget deal hammered out by lawmakers.

That figure is less than a third of the approximately $3.5 trillion the government is likely to spend next year. The rest will be paid out automatically through federal benefits programs that mostly care for the elderly and poor, including Social Security, Medicare and Medicaid.

(Reporting by Jeff Mason and Mark Felsenthal; Additional reporting by David Lawder; Editing by Eric Beech)

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