WASHINGTON -- President Barack 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 a budget blueprint easily exceeding $3 trillion for 2010, 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 that every American gets medical care. Obama is also expected to ask Congress for an additional $75 billion to cover the costs of wars in Iraq and Afghanistan through September. The disclosures came from three administration officials, who spoke on condition of anonymity because the budget won't be made public until later Thursday. All told, the deficit for the ongoing 2009 budget year would reach $1.75 trillion, up from a $1.5 trillion estimate revealed just days ago by the White House. The increase seems to reflect concerns that more money may be needed to rescue banks and other companies. 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% to 39.6%, said an administration official. Individuals making more than $200,000 would pay the higher rate. About half of what officials characterized as a $634 billion "down payment" toward health care coverage for every American would come from cuts in Medicare. That is sure to incite battles with doctors, hospitals, health insurance companies and drug manufacturers.
Some of the Medicare savings would come from scaling back payments to private insurance plans that serve older Americans, which many analysts believe to be inflated. Other proposals include charging upper-income beneficiaries a higher premium for Medicare's prescription drug coverage. 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% as Obama wants. That proposal is deeply controversial, particularly with colleges and nonprofit institutions that depend on wealthy donors and with lawmakers representing high-tax states such as New York and New Jersey. 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 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.