From The Wall Street Journal

The President's Priorities

Debt in 2014 will hit 78.2% of the economy.

President Obama is pitching his new budget proposal as a fiscal peace offering to Republicans, but the details suggest everyone should expect more conflict. The fiscal 2014 plan he released Wednesday is a very slightly modified version of his previous budgets that reduces the deficit by raising taxes and trading defense cuts for more domestic spending.

The real news is that his budget ratifies much of the spending increase of the first term and tries to lock it in. He wants the feds to spend $3.78 trillion next year ($11,944 per American), which would still be 22.2% of national output nearly four years into an economic recovery. Before the financial panic in 2008, the government was spending about $1 trillion less, or closer to $2.7 trillion a year and an average of 20% of GDP—and President Bush was no slouch as a spender himself.

Mr. Obama wants federal spending to grow to $4.45 trillion by 2018 fueled mostly by the exploding costs of his Affordable Care Act. This spending surge appears smaller than it is only because the government will bank large reductions in military spending as the Iraq and Afghanistan wars wind down. But unlike in the 1990s, this peace dividend will be spent.

The budget's supposed bow to Republicans is Mr. Obama's proposal for a modest change in annual cost of living adjustments for Social Security. "Chain CPI," as the change is called, would cut spending by about $130 billion and raises taxes by about $100 billion over ten years. We support the concept, but the White House also slips a mickey into that proposal (see below).

Even with this inflation change, federal spending would grow by more than if Mr. Obama simply let current law continue. This is because the President wants to eliminate the current caps on discretionary spending under the budget sequester that are set to save close to $1 trillion over the next decade. He wants to repeal the sequester that is providing the only spending cuts in at least a decade.

His new spending ambitions include $50 billion for public works, more college aid, high-speed rail (the fiscal version of "The Walking Dead"), green energy giveways, $2 billion more for battery-operated cars even as the companies fail, manufacturing subsidies, full funding of ObamaCare, job training (on top of the current 47 federal programs), and more.

Editorial board member Steve Moore on President Obama’s budget. Photos: Associated Press

In return for the Social Security savings, Mr. Obama is still insisting that Republicans accept most of his tax increases totalling $1.1 trillion over 10 years. This budget is said to be a "balanced approach" with $2 of spending cuts for every $1 of new taxes, but over the next five years federal spending would actually rise by $680 billion. So he is really referring to imaginary "cuts" off of anticipated future spending increases. He also isn't counting the estimated $1 trillion in tax increases over the next decade that are already part of ObamaCare.

So nearly all the deficit reduction would come by raising taxes on the oil and gas industry, hedge-fund managers, smokers, millionaires—and savers with his new tax on the buildup of wealth inside 401(k) plans and IRAs above $3 million.

His new preschool entitlement would be funded by raising the cigarette tax to $1.95 a pack from $1.01 now and from 39 cents when he entered office. Someone should inform the White House that tax hikes on a shrinking group of smokers to finance payments to a growing number of beneficiaries is not a healthy fiscal strategy, as the states have found out by spending the proceeds of the Medicaid tobacco settlement.

Mr. Obama is reproposing the "Buffett tax" on millionaires that would raise the levy on capital gains, dividends and other investment income to 30%. When Mr. Obama entered office the investment tax rate was 15% on capital gains and dividends. This year he raised the rate to 23.8% with the ObamaCare investment surtax. Now he wants 30%. This would raise the effective combined tax on corporate profits to close to 54%, one of the highest in the world.

The one piece of good news is that the overall fiscal picture has improved of late because of record-low borrowing costs, the sequester, and a surge in revenues over the past six months due to higher tax rates (and their anticipation last year). The deficit could fall to about $500 billion next year, which counts as progress given the last five years.

On the other hand, debt held by the public as a share of the economy will continue to climb—to what the White House predicts will be a peak of 78.2% of GDP in 2014. As recently as 2008, U.S. debt was 40.5% of the economy. Mr. Obama has nearly doubled it. (See the nearby chart.) With a modicum of spending restraint and faster growth, the debt burden will start to decline. The danger is that there's no room to avoid Southern European debt levels if we have another recession or an interest-rate spike.

The Obama years have turned much about U.S. politics on its head, such as the fact that Presidents usually restrain Congress on spending. Since 2010, the House has restrained a President who wants to keep spending like it's 2009. The U.S. needs a federal budget that would promote faster growth, but gridlock may be the best we can get.

A version of this article appeared April 11, 2013, on page A16 in the U.S. edition of The Wall Street Journal, with the headline: The President's Priorities.