The proposed Fiscal Year 2014 budget which President Barack Obama unveiled Wednesday would raise taxes for some Americans, not all of them upper-income earners, while awarding tax breaks to particular groups and interests such as college students, people who don’t save for retirement, and investors in low-income neighborhoods.

What’s most notable in the Obama plan is that despite much talk from the Simpson-Bowles commission and from other reformers of simplifying the tax code, Obama would, if Congress passed his plan, still be very much in the business of using the tax code to try to fine-tune the economy and engineer certain policy outcomes.

This targeted tax break approach seems exactly opposed to the tax reform effort that the chairmen of the House and Senate tax-writing committees are planning later this year.

Under his plan – which covers the next 10 years – tax revenues would be nearly $1 trillion higher than the baseline current-law forecast by the Congressional Budget Office. Much of that additional revenue would come from tax increases he is proposing.

The president seeks to increase taxes by far more than the $600 billion tax increase in the American Taxpayer Relief Act (ATRA) of 2012 which he signed into law on Jan 2.

He would get the $580 billion by reducing certain tax preferences for upper-income earners. He would limit the value of itemized deductions to 28 percent for families in the highest tax brackets – an idea he offered in his very first budget proposal back in 2009.

Among the other tax increases Obama proposes:

• A new “Financial Crisis Responsibility Fee” imposed on large banks and financial institutions, a kind of retroactive charge five years after the 2008 bailout of the financial sector. The fee is intended “to fully compensate taxpayers for the support they provided to the financial sector during the 2008–2009 economic crisis and to discourage excessive risk-taking” in the future, the president’s budget document says. If enacted, this targeted financial sector tax would raise nearly $60 billion, budget officials say.
• An increase in the estate and gift tax of nearly $72 billion. This was an issue Congress thought it had settled when it passed ATRA at the end of 2012.
• $78 billion in increased taxes on cigarettes and tobacco products.
• $44 billion in tax increases on oil, natural gas and coal producers by eliminating certain tax breaks for those industries.
• $10.7 billion from indexing all tax penalties to the inflation rate.
• $9.3 billion from limiting the amount of money that higher-income people could put in tax-sheltered retirement accounts.

Yuri Gripas / Reuters

A staff member prepares the release and distribution of President Barack Obama's Fiscal Year 2014 Budget at the Government Printing Office in Washington April 10, 2013.

Many of these tax increases can be seen as part of an ongoing project by the president to shift more of the burden of paying for government and especially entitlement programs to upper-income Americans, both retirees and the currently employed.

In the same vein, the president again offered certain Medicare ideas he'd included in his budget plan last year: $68 billion in higher premiums, co-payments and surcharges for mostly higher-income Medicare recipients.

He’d get another $120 billion or so in revenue by tweaking the inflation indexing formula used to set the levels for the tax brackets, the standard deduction, and other provisions in tax law.

But on the other hand Obama also proposes an array of new tax breaks.

For example, he seeks:

• A 10 percent tax credit for small businesses that hire new employees or increase wages. This would cost $25.7 billion in lost revenue.
• Creation of tax-preferred "Promise Zones” in high-poverty communities which would provide tax breaks for hiring workers and investing within the zones, an idea somewhat reminiscent of former Housing Secretary Jack Kemp's Urban Enterprise Zones. This would cost $5.3 billion in lost revenue.
• A new tax-preferred bond program called America Fast Forward Bonds, at a cost of $10 billion, for public school construction.
• A new tax credit to encourage employers to offer retirement savings plans and to automatically enroll workers in them. Cost: $17.6 billion.

Obama’s proposal also makes some assumptions about future spending that might not turn out to be realistic: for example, it forecasts nearly $1.8 trillion in savings from overseas military operations that it assumes will not take place during the next 10 years.

The Obama blueprint isn’t likely to be adopted, but some of its specific proposals might be, if the president can use his persuasive power to bring Republican members of Congress to accept at least some of his new tax increases.

The initial response from GOP leaders was at best tepid.

“The document headed our way does not appear designed to bridge the differences between the House- and Senate-passed budgets. That’s the role Americans would expect the president to play at this stage,” said Senate Republican Leader Mitch McConnell.

President Barack Obama unveiled his proposed Fiscal Year 2014 budget plan Wednesday in the White House Rose Garden, offering a combination of new spending initiatives and tax increases aimed at creating jobs and reducing future budget deficits.

In his remarks, Obama called his plan “a fiscally responsible blueprint for middle-class jobs and growth.”

He said, “We can grow our economy and shrink our deficits. In fact, as we saw in the 1990s, nothing shrinks deficits faster than a growing economy.”

He acknowledged that “too many Americans still looking for work” and said he’d address that problem by new spending which he called “targeted investments in areas which will create jobs right now.” He called for $1 billion on creation of new manufacturing innovation institutes. 

The Obama plan also calls for $50 billion for repairing highways, bridges, and mass transit systems.

He also said Congress would have to make some changes in Medicare to reduce future outlays on that program “but they don’t have to drastic ones.”

Obama proposes to increase taxes by well more than the $600 billion tax increase he signed into law on Jan. 2. For starters, he would aim to get the $580 billion by eliminating certain tax preferences for upper-income people.

His plan would also get another $124 billion or so in revenue over ten years by tweaking the inflation indexing formula used to set the levels for the tax brackets and other provisions in tax law. The change in inflation indexing would also apply to Social sec and other federal benefits, which has prompted vocal opposition from some progressives in Obama’s party.

He also proposed to raise cigarette taxes in order to help pay for preschool for children of lower-income and middle-income families.

Larry Downing / Reuters

President Barack Obama talks about the Fiscal Year 2014 Budget while next to acting Director of Office of Management and Budget Jeffrey Zients in the Rose Garden at the White House in Washington, April 10, 2013.

The Obama plan also calls for new spending, such as $50 billion for repairing highways, bridges, and mass transit systems.

The president’s budget proposal came late – nine weeks after the first Monday in February, the statutory deadline set by the 1974 Budget Act. It also came after the House and Senate had already passed their very different FY 2014 budget proposals.

The initial response to the Obama plan from Republican congressional leaders indicated that negotiations with them at this stage would not be fruitful.

“It’s not a serious plan, for the most part just another left-wing wish list,” said Senate Republican Leader Mitch McConnell who spoke on the Senate floor about an hour before Obama delivered his remarks at the White House. Highlights of the Obama plan had been released by administration officials last week and Wednesday morning before the president spoke.

“The document headed our way does not appear designed to bridge the differences between the House and Senate-passed budgets. That’s the role Americans would expect the president to play at this stage,” McConnell said.

The Obama plan, he scoffed, “does not represent some grand pivot from left to center. It’s really just a pivot from left – to left.”

But McConnell did praise Obama on one point: “the president seems prepared to finally concede this time that at least something needs to be done to save entitlements from their inevitable slide toward bankruptcy. I’m glad to see him begin to come to grips with the math here.”

House Speaker John Boehner agreed with McConnell on that point: Obama, he said, “does deserve some credit for incremental entitlement reforms they have outlined in this budget. But I would hope that he not hold hostage these modest reforms for his demand for bigger tax hikes. Why don’t we do what we can agree to do? What don’t we find the common ground that we do have and then move on that?”

In the battles over the budget, there are really just two issues: How much revenue the government takes in and how much it spends. 

President Barack Obama signed a big tax increase into law on Jan. 2, and since then Republicans have tried to keep the fight squarely focused on the spending-side of the ledger. But that hasn't stopped Democrats and others from seeking different, and at times innovative, ideas for bringing in more cash to federal coffers.

Some of them are new, such as limiting the amount of money that could be shielded from taxes in retirement accounts. But not all of the proposals are targeted at higher earners.

Although it may be months before a tax reform effort promised by the chairmen of the House and Senate tax-writing committees moves into higher gear, an increasing number of items are now on the tax menu.

Some of these proposals could be ingredients in a compromise deal on taxes and entitlements between Obama and GOP congressional leaders.

In Obama’s budget proposal for Fiscal Year 2014, which will be formally released Wednesday, administration officials say the president will offer a few new contributions to the revenue debate:

• A change in the inflation indexing formula used to set the levels for the tax brackets, the standard deduction and other provisions in tax law. Obama will propose using a less generous indexing measure called “chained CPI.” According to an analysis by the Congressional Budget Office, using chained CPI for the tax code would raise nearly $124 billion in new revenue over 10 years.
• An increase in taxes on cigarettes and other tobacco products in order to help pay for an initiative to provide preschool education to four-year-old children.
• A limit on the amount of money that could be shielded from taxation in retirement accounts. The Obama proposal would prohibit individuals from accumulating more than $3 million in IRAs and other tax-sheltered retirement accounts. This proposal would raise $9 billion over 10 years, according to administration officials.

Obama will likely reiterate his support for an idea he has proposed since 2009 and which Senate Democrats endorsed in their budget resolution: limiting deductions and other tax preferences for upper-income people.

Meanwhile, there’s some bipartisan support for a tax or fee on carbon dioxide emissions. Former Secretary of State George Shultz --who served under President Ronald Reagan -- and conservative University of Chicago Nobel laureate economist Gary Becker co-authored an op-ed in Monday’s Wall Street Journal endorsing the idea of a revenue-neutral tax on carbon.

This would encourage producers and consumers to shift away from more carbon-intensive energy sources such as coal and toward less carbon-intensive sources. They’d also eliminate tax breaks for various energy sources, such as biodiesel. The revenue from the carbon tax could be refunded to taxpayers, perhaps in the form of a “carbon dividend,” Shultz and Becker argue.

Although their version is revenue-neutral, the carbon tax idea could end up being part of a larger package of revenue raisers.

Susan Walsh / Susan Walsh / AP

President Barack Obama gestures as he speaks during an Easter Prayer Breakfast in the East Room of the White House in Washington, Friday, April 5, 2013.

The carbon tax concept won the support of 41 senators, all of them Democrats, during a vote three weeks ago, when it was proposed by Sen. Sheldon Whitehouse, D-R.I., as an amendment to the Fiscal Year 2012 budget resolution.

Whitehouse said Tuesday that the lesson of that vote was “we’ve got a more solid base of support than I thought and obviously we need lots of room to grow in order to move it along.”

Whitehouse said a carbon tax could be part of the tax reform effort that Senate Finance Committee chairman Sen. Max Baucus, D-Mont., and House Ways & Means Committee chairman Rep. Dave Camp, R-Mich., will lead this year.

The Rhode Island Democrat argued that a carbon tax could be made appealing to Republicans since the revenue that would be generated could be used to pay for tax cuts: “They’d probably want to do things like get rid of the estate tax, lower the corporate tax rate – I’m not sure we’d be thrilled with all of those – but it’s a discussion worth having,” he said.

Senate Finance Committee ranking Republican Orrin Hatch of Utah said he had noticed Shultz’s support for a carbon tax, adding, “I’ve basically been against a carbon tax, but I’ll look at it and see.”

Another Senate Finance Committee member, Ben Cardin, D-Md. said Tuesday the carbon tax is an idea “absolutely we need to take a look at ... we need to look at different revenues to take care of our energy and transportation needs.”

As for using chained CPI to index parts of the tax code, Cardin said he was “very much aware” of the increased revenue that would result from that change. “More revenue is a good idea, but chained CPI also affects the beneficiaries not only of Social Security but other programs. My preference is to do entitlement reform without affecting middle-income and lower-income beneficiaries.”

Related:

Budget, immigration, gun control: Congress returns to debate cornerstones of Obama agenda

First Thoughts: Obama to offer compromise budget to Republicans

With budgets on the table, Washington divide remains as wide as ever

As both the House and Senate work on budget blueprints for the new fiscal year, Rep. Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, emphasized on NBC’s Meet the Press Sunday that for his party “our priority is job growth” -- not cutting the debt or annual budget deficits.

“Right now our big problem is to sustain the economic recovery. We’ve seen momentum in the job market and the last thing we want do right now is to put the brakes on that,” Van Hollen told NBC’s David Gregory. “In fact one half of this year’s deficit is due to unemployment.”

According to the most recent report from the Bureau of Labor Statistics, 12 million Americans were unemployed and seeking work in February, while another 885,000 weren’t looking for work because they believe no jobs are available for them.

“What the president is saying is our focus right now should be to get people back to work, sustain the recovery – and then reduce the deficit in a measured, balanced way,” Van Hollen said. He added that President Barack Obama’s budget proposal for the new fiscal year which begins on Oct. 1 will put budget deficits “on a sustained, downward trajectory.”

Appearing alongside Van Hollen, Rep. Kevin McCarthy of California, the House Republican Whip, complained that “the Democrats’ budget never balances,” while his party’s Fiscal Year 2014 blueprint will achieve a balance of spending and revenues by the end of the ten-year forecasting period.

“The president has a different belief than we do. He believes deficits don’t matter. We do,” McCarthy said.   

The California Republican defended the House Republicans’ budget plan which assumes that Obama’s health care overhaul, the 2010 Affordable Care Act, will be repealed. “Budgets are blueprints and priorities,” he explained. “We think Obamacare should be repealed. A majority of Americans agree with us. But we also think tax reform should happen so you can grow the economy.”

McCarthy added that persistently high federal debt would crowd out private sector borrowing and inhibit the growth of businesses.

Van Hollen said that the Democrats’ proposal would eventually achieve a balanced budget “out in the future, around 2040.” But he reiterated that for now the urgent need is job creation. The House Republican budget plan “will slow job growth at exactly the wrong time,” he contended.

Meanwhile on ABC’s This Week, House Speaker John Boehner again rejected the idea of additional tax increases, on top of the ones that Obama signed into law on Jan 2.

“The president believes that we have to have more taxes from the American people. We’re not going to get very far,” Boehner said. “The president got his tax hikes….. The talk about raising revenue is over. It’s time to deal with the spending problem.”

Boehner agreed with Obama’s recent remark that the federal government doesn’t face an imminent debt crisis. “We do not have an immediate debt crisis – but we all know that we have one looming,” Boehner said. “And we have one looming because we have entitlement programs that are not sustainable in their current form.”

Another prominent Republican Sen. Bob Corker of Tennessee said on Fox News Sunday that Republicans “would be glad to look at tax reform that generates additional revenues. And that doesn’t mean increasing rates, it means closing loopholes, and that also means arranging our tax system so that we have economic growth. And I think we have been saying that since day one.”

In an opening bid for possible negotiations with House Republicans that might lead to a compromise budget resolution this summer, Senate Democrats on Wednesday formally unveiled their budget blueprint for the new fiscal year that starts Oct. 1.

The Democratic entry into the budget fray will help shape the same kind of battle in Washington over taxes and spending that has become a familiar sight in recent years.

The plan, offered by Senate Budget Committee Chairman Patty Murray, D-Wash., would seek $975 billion in spending reductions over the next 10 years as well as $975 billion in new tax revenue, which she said would be raised by “closing loopholes and cutting unfair spending in the tax code for those who need it the least,” according to Murray’s prepared remarks opening her committee’s consideration of the plan.

According to the Congressional Budget Office’s projections, from 2014 to 2023, the federal government will spend $47 trillion.

So Murray’s $975 billion in spending reductions, if enacted, would amount to about a 2 percent cut over the full 10-year period.

The CBO estimates that federal revenues will amount to $40.2 trillion over the 2014-2023 period, so Murray’s tax increases would be about a 2.4 percent increase on that CBO forecast.

Echoing some of President Barack Obama’s ideas from a 2010 infrastructure investment proposal, from his 2011 American Jobs Act, and from his budget proposal for Fiscal Year 2013, Murray’s blueprint also calls for a $100 billion stimulus package that would include hiring workers to repair the “highest priority deteriorating infrastructure, and fixing crumbling schools and installing critical educational technology, like broadband, that our students need to succeed.”

As Obama did in 2010, Murray calls for the creation of a public-private infrastructure bank which would raise capital to pay for the building of highways, transit projects, and other public facilities.

The House Republicans’ budget plan offered Tuesday by Budget Committee chairman Rep. Paul Ryan of Wisconsin, calls for a redesign of the Medicare system beginning in 2024, a cut in the growth of future spending on the Medicaid health insurance program for the poor, and cuts in the national debt.

Ryan’s plan aims to lower the ratio of publicly held debt to gross domestic product (GDP), to 55 percent by 2023, down from its current level, 76 percent of GDP.

Ryan’s plan seeks no tax increases.

In response to Ryan, Murray said, “We reject calls to dismantle or privatize Medicare by voucherizing it.”

Murray also rebuffed Republican calls in the House GOP budget plan for repealing the 2010 Affordable Care Act.

The Murray plan also would scrap the automatic spending cuts, also known as the sequester, which are required by the 2011 Budget Control Act, and replace the money from the sequester with a mix of tax increases and spending cuts different from the ones required by the sequester.

The Senate Budget Committee is scheduled to vote on her plan Thursday, followed by a floor debate next week.

“I am hopeful that the House of Representatives will join us at the bargaining table and we can work together toward the responsible and bipartisan budget deal the American people expect and deserve,” Murray said.

But she added, in a slap at Ryan, the 2012 GOP vice presidential candidate, that

His fiscal approach “was on the ballot last November, and voters across the country rejected it.”

Senate Democrats and House Republicans at this point appear so far apart in their budget plans that the chances of them devising a compromise budget plan seem minimal.

Under a budget process known as “reconciliation,” tax increases and changes in entitlement programs could be approved with a simple majority vote in the Senate, rather than the usual 60 vote requirement needed to advance legislation.

Most federal spending is mandatory and is on a kind of automatic pilot and isn’t subject to annual appropriations decisions by Congress since the benefits in the entitlement programs such as Social Security and Medicare go to anyone who meets the eligibility criteria.

But nonetheless the congressional budget resolution is a statement of policy goals and principles for each party. And a budget resolution can sometimes serve as a device for raising or lowering spending levels on discretionary spending items such as the National Park Service.

Republicans on Tuesday debuted their full 2014 budget, an ambitious proposal that would seek to balance the budget within a decade, but which is also almost certain to never become law.

Rep. Paul Ryan, R-Wis., the Republican budget chief and 2012 vice presidential nominee, called his third budget an "invitation" to President Barack Obama and Senate Democrats to begin bargaining toward a deal to balance the budget. 

"This is not only a responsible, reasonable, balanced plan," Ryan said, "it's also an invitation. This is an invitation to the president of the United States, to the Senate Democrats to come together to fix these problems."

But just as Obama has made new overtures to Ryan and other Capitol Hill Republicans in hopes of breaking the fiscal logjam in Congress, Ryan produced a new budget that offers up few concessions to Democrats, and doubles down upon many of the policies on which Republicans campaigned during last fall's election.

The new Ryan budget calls for repealing Obama's signature health care reform law, and sweeping changes to Medicare for anyone under the age of 54 -- familiar policies for which Republicans have aggressively pushed during the last two years. The budget's goal would be to eliminate all but two income tax brackets, one at 10 percent and the other at 25 percent; it would raise no new revenue through taxes, cutting against the president's own demands for additional revenue.

Click here for the full text of the budget (.pdf)

"While the House Republican budget aims to reduce the deficit, the math just doesn't add up," White House press secretary Jay Carney said in a statement.

But the White House stopped short of waging a blistering assault on the Ryan plan, offering a glimmer of hope that bipartisanship might still eventually carry the day. 

"While the president disagrees with the House Republican approach, we all agree we need to leave a better future for our children," Carney said. "The president will continue to work with Republicans and Democrats in Congress to grow the economy and cut the deficit in a balanced way."

Still, Ryan defended the generally unflinching conservatism of his budget.

"That means we surrender our principles? That means we stop believing in what we believe in?" he asked at a press conference to debut his proposals. "Elections do have consequences ... This is our offer, this is our vision."

The GOP proposal comes amid new overtures by Obama to Republicans in Congress. The president had lunch last week with Ryan, and dinner with a group of GOP senators. Obama will address House and Senate Republicans separately this week, marking a pivot in his strategy toward vexing fiscal issues following bruising battles over the fiscal cliff during the first two months of this year.

Related: Ryan plan sparks budget battle

This latest GOP plan -- the third authored by Ryan since Republicans retook the House in 2010 -- is the opening salvo in a spring full of budget battles, culminating in the mid-May expiration of the nation's borrowing authority. Congress authorized a suspension of the debt limit through that deadline, but made it contingent upon the House and Senate each passing their own budget. (Republicans have repeatedly needled Senate Democrats for failing to pass a budget in recent years.)

"I hate to break the suspense, but their budget won't balance—ever," Ryan wrote in an op-ed for the Wall Street Journal. "We House Republicans have done our part … Now we invite the president and Senate Democrats to join in the effort."

Mandel Ngan / Mandel Ngan / AFP - Getty Images

House Budget Committee Chairman Paul Ryan makes his way to the West Wing on March 7, 2013 for a lunch with President Barack Obama.

Ryan's blueprint claims to achieve $4.6 trillion in savings over through 2023, and steadily reduce government spending as a share of gross domestic product in the meantime. In his op-ed, Ryan asserted the reforms could boost gross national product by as much as 1.7 percent.  Ryan's previous plan projected a balanced budget outside of ten years. 

But the plan also relies on savings accrued from two plans which Republicans had staunchly opposed: the new taxes on the wealthy in the Jan. 1 fiscal cliff deal, and the $715 billion in savings from cuts to Medicare providers as part of Obama's health care reform law. 

Of the new taxes, Ryan said that Republicans were "not going to re-fight the past." When pressed as to how that principle squares with his budget's goal of repealing Obamacare, Ryan pivoted, and said that the health reform law would be so onerous, that the eventual GOP replacement would be an improvement. 

It would achieve its goal through a series of sweeping reforms, most of which are unlikely to survive the Democratic Senate or a presidential veto threat.

Ryan's budget again seeks changes to Medicare, namely by establishing an exchange of private plans (including traditional Medicare) from which seniors could choose, with the assistance of a premium support voucher. The plan would apply for those under the age of 54 — a threshold one year younger than past Ryan proposals — and also employ means-testing, in which wealthier seniors pay a higher share of their premiums.

The Ryan budget also calls for repealing the health care reform law (though it would leave in place savings from cuts in payments to medical providers, a component against which Ryan and Mitt Romney railed during last fall's campaign).

Related: From continuing resolutions to budget blueprints: What you need to know about money wrangling

The campaign also focused heavily on Ryan's past budgets, as Obama and Democratic candidates downballot railed against similar proposed changes to entitlement programs. Those attacks offered a vivid illustration of the political difficulties in putting such aggressive reform plans to paper. That experience helped inform the GOP's demand that Democrats produce their own alternative budget, through which Republican staffers will surely comb to exploit politically.

Ryan's own budget isn't short on additional conservative prescriptions, either. The 2014 budget calls for sweeping tax reform, with a goal of cutting the top corporate tax rate to 25 percent, and simplifying the income tax into two brackets. The tax cuts would be financed by closing loopholes and deductions in the tax code.

The Republican budget will also touch upon other social programs. It would block-grant Medicaid to states, and allow states more flexibility, too, in implementing welfare programs. Ryan's plan would also freeze the current maximum support for students awarded as Pell Grants, a popular program with students (and young voters) that Obama had expanded in his first term.

The proposals, as a whole, amount to a deeply conservative set of proposals offered against the backdrop of new hopes for bipartisan fiscal talks in Washington.

Obama's renewed outreach — and Republicans' relatively warm reception of it — has stoked the embers of hope that lawmakers may finally reach the kind of grand fiscal deal that has eluded them during the past few years. As Ryan unveils his new budget, Obama's own reaction could either preserve these renewed hopes, or allow them to wither after just a few days.

To that end, Obama was set to speak to House Republicans on Wednesday, and Senate Republicans on Thursday. He was also scheduled to give an interview to ABC News on Tuesday, which could be his first on-camera reactions to Ryan's new proposal.

This story was originally published on Tue Mar 12, 2013 10:07 AM EDT

The federal budget comes back into the Washington political spotlight this week, as Congress tries to move forward on government spending for the rest of this year as well as a budget for the next. 

The clashing fiscal priorities of congressional Democrats and Republicans will be on full display for the next two weeks with deadlines looming as early as the end of March.

Even as members of Congress work on these plans, the spending reductions, also known as the “sequester,” required by the Budget Control Act remain in effect, slicing 6 percent from non-defense, non-entitlement spending and 8 percent from defense spending in the current fiscal year.

Entitlement spending through programs such as Social Security, Medicaid and the Supplemental Nutrition Assistance Program, formerly known as "food stamps," is immune from the sequester’s cuts, although Medicare providers and plans are subject to a two percent cut. At this point there appears to be little likelihood of an agreement that would undo the sequester.

Here are the significant budget actions coming up in the weeks ahead:

This week
Obama goes to Capitol Hill to hold separate meetings with Democratic and Republican members of Congress.

White House spokesman Jay Carney cautioned Monday that these meetings would not be budget negotiations. “I wouldn’t expect that they’re going to trade paper on numbers,” he said. Obama’s goal in the meetings, said Carney, was “making clear what his policy positions are, making clear his sincerity” in seeking lower budget deficits.

This week the Senate takes up its version of a bill – called a continuing resolution, or CR – to keep funding the government through the end of the current fiscal year. Senate Appropriations Committee chairman Sen. Barbara Mikulski, D-Md., will release her CR Monday.

Last week, the House approved its version of the continuing resolution, with a bipartisan coalition of 53 Democrats and 214 Republicans supplying the votes to pass it.

The House bill, worth $982 billion, includes $518 billion in defense funding and another $87.2 billion for overseas military operations such as those in Afghanistan and North Africa.

Ordinarily a CR continues funding for federal departments and agencies at the prior year’s level, but the House CR contains some spending adjustments – known on Capitol Hill as “CR anomalies” – which allow the Defense Department more leeway in its use of funds.

The House CR includes funds important to specific defense-dependent districts – such as funding for the building of two Virginia-class submarines in 2014 and funds for research and development on a submarine that will replace the Reagan-era Ohio-class submarines.

The House CR also includes some spending increases in certain programs such as a provision allowing the Customs and Border Protection agency to maintain its current staffing levels and a 1.7 percent pay increase for military personnel.

If the Senate CR differs from the House-passed CR, the two chambers would need to negotiate a compromise.

In order to avert a government shutdown, both Obama and congressional leaders want to get a CR enacted by March 27, when the current one expires.

Senate Majority Leader Harry Reid said last Thursday that the Senate must finish its work on the CR this week because next week will be devoted to debating and passing a FY2014 budget blueprint. “And we have to do that before the break we take for Easter,” Reid said. Both chambers of Congress take a two-week break for Passover and Easter the weeks of March 25 and April 1.

Also this week, the chairmen of both the House Budget Committee and the Senate Budget Committee are expected to release their budget blueprints for fiscal year 2014. The Senate has not passed a budget resolution since 2009.

While most federal spending is mandatory – for example Social Security benefits – and is on a kind of auto-pilot (the money goes to those who meet the eligibility criteria), the congressional budget resolution is an important device for raising or lowering spending levels on items such as the National Park Service, weather satellites and the National Science Foundation, which funds basic research.

Also under a budget process known as “reconciliation,” tax increases and changes in entitlement programs could be approved with a simple majority vote in the Senate, rather than the usual 60-vote requirement needed to advance legislation. 

But on Monday, Sen. Orrin Hatch, R-Utah, the top Republican on the tax-writing Senate Finance Committee urged Democrats to not use budget reconciliation to enact tax increases. Hatch said there's bipartisan interest in enacting comprehensive tax reform through the normal Finance Committee process, but that "it will poison the well for tax reform, making it all but impossible" if the Democrats choose to use the reconciliation route.

Pool / Reuters file photo

House Budget Chairman Paul Ryan, R-Wis.

The people to watch are Senate Budget Committee chairman Sen. Patty Murray, D-Wash., and House Budget Committee chairman Rep. Paul Ryan, R-Wis.

A key point of contention in Ryan’s budget plan last year was his call for changes to Medicare beginning in 2023. Ryan’s proposal would have applied market principles to Medicare by encouraging seniors to shop among private-sector insurance providers.

Ryan’s 2012 plan would also have imposed a limit on the growth of per capita Medicare spending for people reaching eligibility after 2023.

Next week
The Senate is scheduled to debate Murray’s FY 2014 budget proposal. Senate rules allow senators to offer dozens of amendments and some of those votes will likely put members who are up for reelection next year in a difficult position of voting for spending cuts or tax increases.

Once each house passes its FY2014 budget plan, the two sides would need to meet and come up with a compromise plan – but even without a formal FY2014 budget resolution, spending could continue if Congress passed a new CR for FY2014.

Beyond next week
The president’s budget plan is required by law to be submitted to Congress no later than the first Monday in February, but Obama hasn’t yet released his plan for FY2014.

Asked Monday when Obama will deliver his budget proposal, Carney said “I don’t have a date certain for you on the president’s budget; it’s being worked on.” Carney said Obama and his aides are watching the budget plans being proposed by Ryan and Murray and that Obama will work with Congress to try to come up with a plan to reduce budget deficits and encourage economic growth.

This summer
According to Bipartisan Policy Center, the government will reach its borrowing limit by August. Obama and Congress will need to devise an agreement that would raise the borrowing limit. It’s too soon to know whether House Speaker John Boehner will seek to use the debt ceiling as another occasion to pressure Obama to make more spending cuts – especially in the entitlement programs.

This story was originally published on Mon Mar 11, 2013 3:17 PM EDT

Updated at 12:32 a.m. ET: An agreement to stave off the harshest and most immediate consequences of the fiscal cliff won approval in the House late Tuesday. President Barack Obama signed the law on Wednesday night, the battle over which foreshadowed more fights with Congress over spending.

Following a day of hectic wrangling on Capitol Hill — where the prospects for passing the bipartisan, Senate legislation regarding the fiscal cliff hung in the balance for much of New Year's Day — the House voted 257 to 167 to pass the belated compromise measure over the objections of many conservative Republicans.

The legislation takes steps toward resolving the combination of automatic tax hikes and spending cuts that took effect at midnight on Jan. 1. It preserves tax rates as they were at the end of 2012, except for those individuals earning more than $400,000 and households earning over $450,000. It also allows taxes on capital gains and dividends to go up, and extends benefits of the unemployed. Additionally, the Senate bill delays the onset of the "sequester" — the swift, automatic spending cuts — for two months. 

Fiscal cliff compromise leaves few satisfied

"Thanks to the votes of Democrats and Republicans in Congress I will sign a law that raises the taxes on the wealthiest of Americans," Obama said in remarks at the White House Tuesday, "while preventing a middle-class tax hike."

The House vote laid bare some of the internal ideological divisions to plague the GOP over the past two years. More Republican congressmen (151) voted against the Senate bill than for it (85), meaning that Democrats' support was needed to advance the final deal. House Speaker John Boehner, R-Ohio, took the rare step of casting a vote, and did so in favor of the legislation. Rep. Paul Ryan, R-Wis., the former Republican vice presidential nominee, also supported the package. But Boehner's top two lieutenants, Majority Leader Eric Cantor, R-Va., and Majority Whip Kevin McCarthy, R-Calif., each opposed the deal.

"Now the focus turns to spending," Boehner said in a statement following the House vote. "The American people re-elected a Republican majority in the House, and we will use it in 2013 to hold the president accountable for the ‘balanced’ approach he promised, meaning significant spending cuts and reforms to the entitlement programs that are driving our country deeper and deeper into debt."

While the last-minute action on Capitol Hill essentially mitigates much of the risk posed to the U.S. economic recovery by the fiscal cliff, it hardly brings resolution to the bitter and often intractable fight in Washington over taxes and spending. The first half of 2013 will feature battles in Congress over raising the debt limit, continuing basic government funding and the expiration of this two-month delay in the sequester. 

Bipartisan outrage after House skips vote on $60 billion Sandy aid bill

Obama nodded to those looming fights in his remarks Tuesday evening, renewing his call for "balance" in any solution in the coming year to address deficits and debts. But the president also sternly warned Congress against using the debt ceiling as a bargaining chip, as Republicans had in summer of 2011.

"While I'll negotiate over many things, I will not have another debate with this Congress over whether to pay the bills they have racked up," Obama said.

PhotoBlog: Deal done, Obama heads back to Hawaii with a weary wink

The fiscal cliff itself was the product of discord in Congress resolving those very issues. And the difficulty in attaining even this less ambitious piece of legislation — versus the kind of "grand bargain" Obama had first sought in talks with Republicans — offered a cautionary tale for the 113th Congress, in which the House and the Senate remain controlled by the same parties as during the past two years. 

Squabbling
And even for much of Tuesday, House approval of the fiscal legislation — which was negotiated by Senate Minority Leader Mitch McConnell, R-Ky., and Vice President Joe Biden — was far from certain. GOP leaders were forced to cajole conservatives who complained the fallback deal contained insufficient spending cuts. Only after it became clear that Republicans wouldn't have the votes to amend the Senate proposal — which the upper chamber said it wouldn't even consider — did House Speaker John Boehner, R-Ohio, bring the bill to the floor. 

The squabbling was familiar to any observers of Congress during the past two years. This divide almost resulted in a government shutdown and a default on the national debt in 2011. It again threatened Tuesday to allow the painful, across-the-board tax hikes and spending cuts to play out just as the U.S. economic recovery showed signs of accelerating.

PhotoBlog: See images of Congress working overtime to avoid fiscal cliff

And this deal just approved by Congress in the waning hours of 2013's first day all but ensures that much of the coming year will be dominated by similar battles in Washington. Republicans are hopeful they might be able to extract more spending cuts and entitlement reforms with the government up against other deadlines, like the one needed this spring to authorize more government borrowing. 

That could complicate Obama's already-ambitious second term agenda. The president said just this past Sunday on NBC's "Meet the Press" that he will seek comprehensive immigration reform legislation and new laws to address gun violence.