Obama seeks $634B for health care

WASHINGTON -- President Obama is asking Congress to raise taxes on the wealthy and cut Medicare costs to provide health care for the uninsured while making the just-enacted $400 tax cut for most workers permanent.

In his first budget blueprint, Obama proposes setting aside $634 billion over the next decade to expand government-subsidized health coverage -- a little more than half the money needed to ensure every American gets care.

The disclosures came from three administration officials, who spoke on condition of anonymity because the budget won't be made public until today.

Obama's budget proposal would effectively raise income taxes and curb tax deductions on couples making more than $250,000 a year, beginning in 2011. By not extending former president George W. Bush's tax cuts for such wealthier filers, Obama would allow the marginal rate on household incomes above $250,000 to rise from 35 percent to 39.6 percent, said an administration official.

The plan also contains a proposal to raise hundreds of billions of dollars by auctioning off permits to exceed carbon emissions caps Obama wants to impose on users of fossil fuels to address global warming. Some of the revenue from the pollution permits would be used to extend the "Making Work Pay" tax credit of $400 for individuals and $800 for couples beyond 2010 as provided in the just-passed economic stimulus bill.

About half of what officials characterized as a $634 billion "down payment" toward health-care coverage for every American would come from Medicare cuts.

To raise the other half, Obama wants to reduce the rate by which wealthier people can cut their taxes through deductions for mortgage interest, charitable contributions, local taxes and other expenses to 28 cents on the dollar, rather than the 35 cents they can claim now.

Even more money would be raised if the top rate reverts to 39.6 percent as Obama wants.

That proposal is deeply controversial, particularly with colleges and not-for-profit institutions that depend on wealthy donors and with lawmakers representing high-tax states such as New York and New Jersey.

And Obama's promise to phase out direct payments to farming operations with revenue above $500,000 a year is sure to cause concerns among rural Democrats.

Even after all those difficult choices -- cutting about $2 trillion from the budget over 10 years, administration officials say -- Obama's budget still would leave the federal government heavily in the red, with deficits remaining above $500 billion over the second half of the decade.

The budget for 2009 will exceed $1.5 trillion and gradually ease to $533 billion by 2013, administration officials say. That's about 3 percent of the size of the economy, a level the administration says it can maintain through the second half of the decade.

"I think they make pretty good progress the first five (years) given where we are," said Senate Budget Committee Chairman Kent Conrad, D-N.D. "Then they kind of are stuck at 3 percent of GDP."

Sen. Max Baucus, D-Mont., chairman of the Finance Committee, called Obama's proposal to tax the wealthy to finance health care reform a starting point. But he wants to also examine taxing as people's income some of health insurance benefits provided by employers -- an idea rejected by Obama in last year's presidential campaign.

Obama's $634 billion head start on health care could easily double as lawmakers flesh out details in coming months on how to provide medical coverage to all of the 48 million Americans now uninsured while also trying to slow increases in health care costs. Those costs now total $2.4 trillion a year and keep rising even as the economy is shrinking.

Independent experts say providing coverage for all could easily cost more than $1 trillion over 10 years, a figure the Obama administration does not dispute.

But the administration also is demanding that any further costs be offset with tax hikes or further spending cuts under stricter pay-as-you-go budget rules.

Budget documents provided to The Associated Press show that Obama will not lay out a detailed blueprint for a health care overhaul, but a set of broad policy principles and some specific ideas for how to raise a big chunk of the money.

The principles include guaranteeing people a choice of insurance plans and doctors and continuing employer-based coverage. Americans also should be able to take their health care benefits with them when they change jobs, an administration official said.

The budget plan also recommends a long-term fix to update the alternative minimum tax for inflation. That could add $150 billion to the deficit by 2013, according to congressional estimates. The AMT was originally designed to make sure the wealthy paid at least some taxes, but it threatens to ensnare some 24 million middle- to upper-income taxpayers next year.

The budget would freeze the estate tax at current levels rather than allowing it to permanently expire next year. That would exempt individuals' estates of $3.5 million or less from the 45 percent estate tax rate, with a $7 million exemption for couples.

Obama is also expected to seek about $534 billion for the Defense Department, administration officials said, an increase over this year's base figure of $513 billion.

Neither figure includes the full cost of fighting the wars in Iraq and Afghanistan.

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Associated Press writer Anne Gearan contributed to this report.