This week President Obama released his $3.77 trillion budget proposal for fiscal year 2014, which includes $400 billion in spending cuts to health care and would raise taxes on higher-income individuals.  The President estimates that his proposal would reduce the federal deficit by $1.8 trillion over a decade, bringing the deficit to about $500 billion in 2016 and down to 1.7% of the economy by 2024.  The budget would eliminate the recent cuts under sequestration, which implemented a 2 percent cut in Medicare provider payments and a 5.1 percent cut to the National Institutes of Health (NIH), and replace them with other reductions.  Additional cuts would come from reducing Medicare payments to health care providers, including hospitals.  Some of the proposal’s $400 billion in Medicare spending reductions would come from negotiating better prescription drug prices for beneficiaries; but the proposal also calls for higher-income beneficiaries to pay more.

The budget proposal allocates a total of $80.1 billion for Health and Human Services (HHS), or about $4 billion more than was budgeted for the department in 2012.  This includes $1.5 billion to cover the health reform law’s insurance exchanges, which are due to start covering people in 2014.  The budget proposal also appropriates $31.3 billion for the National Institutes of Health, of which 83% would go to fund outside research. NIH also hopes to spend $40 million “on research collaborations with academic institutions, the private sector, and other government agencies on the new Brain Research through Application of Innovative Neurotechnologies (BRAIN) Initiative,” as noted in the budget document.

Obama’s proposal also would raise revenue by limiting itemized deductions for higher-income families and by imposing a 30% minimum tax rate on households with annual incomes of more than $1 million.  Under the President’s budget, the government would shift in 2015 from the standard Consumer Price Index, used to compute cost-of-living increases for Social Security and other benefits and to set income-tax brackets, to what is called a “chained C.P.I.”  The intent of the new formulation is to slow the increase in benefits and raise income tax revenues by putting some taxpayers into higher brackets sooner, for total estimated savings of $230 billion over 10 years.  However, the White House has said some low-income elderly U.S. residents and veterans would be protected from the proposal.

The Obama budget proposal will now join competing budget outlines that have already been approved by the Republican-controlled House and the Democratic-run Senate.  Washington insiders predict that serious budget negotiations will not take place until the summer, when the government will again be confronted with the need to raise the government’s borrowing limit or face the prospect of a first-ever default on U.S. debt.