(Bloomberg) -- President Obama will emphasize Democratic priorities in his next budget, dropping an offer to trim the growth of entitlement spending and proposing new tax limits for U.S.-based multi-national companies.

In an election-year spending blueprint to be sent to Congress March 4, Obama is leaving out a proposal to reduce cost-of-living adjustments for Social Security and other benefit programs, while adding $56 billion for domestic and defense programs and seeking more revenue through taxes. The budget seeks new limits on companies’ ability to take advantage of gaps between countries’ tax rules, administration officials said.

The details released yesterday indicate that Obama isn’t counting on reaching a so-called grand bargain with Republicans in Congress to reduce U.S. debt and will press ahead with spending plans for education, job training and research that he says will bolster middle-income Americans.

“There was a point in time when there was a little bit more optimism about the willingness of Republicans to budge on closing some tax loopholes, but over the course of the last year, they’ve refused to do that,” Josh Earnest, a White House spokesman, said yesterday.

Republicans put the blame for the impasse on the White House. Obama’s decision on cost-of-living increases for government programs shows he “has no interest in doing anything, even modest, to address our looming debt crisis,” Brendan Buck, a spokesman for House Speaker John Boehner, said.


The tax proposals affecting companies would limit transactions that are considered debt by one country and equity by another, which can result in neither country taxing the income, according to an administration official who requested anonymity to describe the proposals because they haven’t been made public.

The proposals would also address some digital transactions designed to move profits to low-tax countries. Plans for those type of transactions and so-called hybrid instruments are being added to ideas previously offered by the administration to keep companies from shifting profits from high-tax to low-tax countries, the official said.

The U.S. has the industrialized world’s highest statutory corporate tax rate, at 35%. While bothObama and congressional Republicans have endorsed revamping the tax code, no plan to lower the corporate rate has advanced in Congress because of disagreements over the details and on what should happen to income taxes for individuals.


In his last budget, Obama proposed making cost-of-living adjustments for benefit programs using the so-called chained-CPI formula in a bid to engage in debt-reduction negotiations with Republicans. Those talks eventually deadlocked over taxes and spending.

Obama’s CPI proposal drew criticism from many of his fellow Democrats in Congress and their allies, who said it would hurt retirees and lower-income Americans because payments would rise more slowly.

The nonpartisan Congressional Budget Office said in November the change would save $162.5 billion over 10 years.

Obama abandoned the proposal a day after 117 House Democrats, led by Representative Allyson Schwartz of Pennsylvania, urged him to drop it.

Maya MacGuineas, head of the Campaign to Fix the Debt, a nonpartisan advocacy group whose members include business leaders and former lawmakers, expressed disappointment in Obama’s abandonment of the CPI plan.


“The withdrawal by the president on this specific issue, and his general pivot away from focusing on the nation’s medium and long-term fiscal challenges, reflects a dangerous trend,” MacGuineas said.

Earnest said Obama is still willing to put the offer back on the table if Republicans are willing to resume negotiations, including raising revenue through the tax code.

An administration official, who briefed reporters on condition of anonymity to discuss White House deliberations for the fiscal 2015 budget, said Obama’s advisers concluded there weren’t enough votes in Congress to move forward with a push to revise entitlement programs. The official also said such action is no longer as urgent.

Last year’s federal deficit of $680 billion was the lowest in five years. The deficit as a share of the economy will shrink to a seven-year low in the 12 months ending Sept. 30, according to projections earlier this month by the Congressional Budget Office. The projected gap is down from 9.8% of the gross domestic product in 2009, the widest in records dating back to 1974.


Earnest said the budget will abide by the spending levels in a two-year budget agreement negotiated late last year by Representative Paul Ryan, Wisconsin Republican and chairman of the Budget House, and his Senate counterpart, Patty Murray, a Washington Democrat.

“The president’s going to live within that compromise,” Earnest said.

Within those limits, Obama is repackaging some previous proposals, including spending on education, research, education and job training, into a $56 billion plan the administration calls an “Opportunity, Growth and Security Initiative.” Half the spending is for defense, half for non-defense programs.

Earnest said the initiative would be “fully paid for” through a combination of spending cuts elsewhere and closing tax loopholes. He declined to give specifics before the March 4 release of the spending plan.

Obama previously announced he also will ask Congress to approve a $1 billion Climate Resilience Fund as part of the budget to help federal, state and local governments prepare for the effects of climate change.



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