Obama budget plan to tax the rich

US President Barack Obama has proposed to raise taxes on the wealthy in his 2013 budget, prompting an election year spending showdown with Republicans.

The proposal includes $1.5 trillion (£950bn) in new taxes, much from allowing Bush-era tax cuts to expire.

He will also call for a Buffett Plan tax hike on millionaires, as well as infrastructure projects.

Republicans said the budget, which must be agreed between the White House and Congress, would not curb the deficit.

Mr Obama unveiled details of the $3.8tn plan in an address to students at a college in Virginia on Monday morning.

Highlights of the budget include:

• Saving $41bn over 10 years by closing tax loopholes for oil, gas and coal companies

• Generating $61bn over 10 years through a levy on financial institutions to recover the costs of the bailout

• Saving $25bn over 11 years in spending cuts to the US Postal Service

• Cutting spending on healthcare by $364bn

• Investing $476bn in infrastructure projects, with $50bn of immediate cash for transport, $30bn to upgrade schools and $30bn to hire teachers, police and firemen.

Dead on arrival?

The BBC's Steve Kingstone said the budget seeks to offer a clear contrast between Mr Obama's vision and that of Republicans.

At its core is the idea that the wealthiest Americans should pay more in tax and that, in the short-term, a chunk of that extra revenue should be spent on job creation, manufacturing and upgrading the nation's schools.

Republican leaders, who portray Mr Obama as a tax-and-spend liberal stoking class warfare, have pronounced the budget dead on arrival.

But in his budget message, Mr Obama said: "This is not about class warfare. This is about the nation's welfare."

"This is about making fair choices that benefit not just the people who have done fantastically well over the last few decades but that also benefit the middle class, those fighting to get into the middle class, and the economy as a whole," he added.

He also said: "In the United States of America, a teacher, a nurse, or a construction worker who earns $50,000 a year should not pay taxes at a higher rate than somebody making $50 million. That is wrong."

His plan to allow George W Bush-era tax cuts to expire would affect families making $250,000 or more per year.

The president would also put in place a rule named after billionaire Warren Buffett to tax households making more than $1m annually at a rate of at least 30%.

Payroll tax about-turn

In a populist touch, the plan would levy a new $61bn tax on financial institutions over the next decade, in an effort to recover the costs of the financial bailout.

And it would raise a further $41bn by cutting tax breaks for oil, gas and coal companies.

But Republicans are unhappy that the blueprint would entail a fourth year in a row of trillion-dollar-plus deficits.

It means the president would not fulfil his 2009 promise to half the federal deficit by the end of his first term.

The spending plan, which would take effect on 1 October, projects a deficit for this year of $1.33 trillion, with the amount falling to $901bn by 2013 and $575bn in 2018.

"He's just going to duck the responsibility to tackle this country's fiscal problems," Republican Congressman Paul Ryan, chairman of the House Budget Committee, told the Associated Press news agency.

Mr Obama has also proposed $110bn in immediate investments for transportation projects, revamps for tens of thousands of schools and for the hiring of teachers and emergency service workers.

The plan would defer major spending cuts until the economy is on a more steady footing, a priority as Mr Obama seeks re-election in November.

The budget does seek to make some savings, proposing a $364bn reduction in healthcare costs over 10 years by cutting payments to Medicaid and Medicare providers, increasing the contributions of future beneficiaries and targeting waste and fraud.

Meanwhile, Republicans in the House of Representatives are dropping a demand that any extension of a payroll tax cut for 160 million Americans be offset by spending cuts elsewhere in the budget.

Correspondents say House Republicans do not want to appear to be obstructing a tax break for ordinary taxpayers in an election year.