Obama sends Congress US$3.73-trillion budget

WASHINGTON:

President Barack Obama yesterday sent Congress a US$3.73-trillion budget that holds out the prospect of eventually bringing deficits under control through spending cuts and tax increases. But the fiscal blueprint largely ignores his own deficit commission's view that the nation is imperiled unless huge entitlement programmes like Social Security and Medicare are slashed.

Obama called his new budget one of "tough choices and sacrifices", but most of those cuts would be held off until after the end of his first term.

Overall, Obama proposed trimming the deficits by US$1.1 trillion over a decade. The administration is projecting that the deficit will hit an all-time high of US$1.65 trillion this year and then drop sharply to US$1.1 trillion in 2012, with an expected improvement in the economy and as reductions in Social Security withholding and business taxes expire.

Obama's 2012 budget would actually add US$8 billion to the projected deficit for that year because the bulk of the savings he would achieve through a freeze in many domestic programmes would be devoted to increased spending in areas Obama considers priorities, such as education, clean energy and high-speed rail.

"We have more work to do to live up to our promise by repairing the damage this brutal recession has inflicted on our people," Obama said.

The president went to a middle school outside Baltimore to highlight the education initiatives in his budget and told the crowd, "We can't sacrifice our future."

Too timid

Republicans, who took control of the House in the November elections and picked up seats in the Senate in part because of voter anger over the soaring deficits, called Obama's efforts too timid. Lawmakers are set to begin debating today US$61 billion in cuts for the remaining seven months of fiscal 2011.

"Presidents are elected to lead and address big challenges," said Republican House Budget Committee Chairman Paul Ryan of Wisconsin. "The big challenge facing our economy today and our country tomorrow is the debt crisis. He's making it worse, not better."

Even some Democrats complained that Obama needed a more vigorous attack on future budget deficits.

"We need a much more robust package of deficit and debt reduction over the medium and long term. It is not enough to focus primarily on cutting the non-security discretionary part of the budget," said Senate Budget Committee Chairman Kent Conrad, D-ND, who called for a budget presentation matching the ambition of Obama's deficit commission.

The US$14-trillion national debt - the cumulative total of deficits since the beginning of the Republic - would grow to US$16.7 trillion by September 30, 2012, Obama's budget projects. Much of that debt is owed to China.

Obama's deficit commission made a host of painful recommendations, including raising the Social Security retirement age and curbing benefit increases, eliminating or sharply scaling back popular tax breaks, reforming a financially unsound Medicare programme and almost doubling the federal tax on gasolene. Obama included none of these proposals in his new budget. The deficit panel called for savings by making these politically tough choices of US$4 trillion over a decade, four times the savings that Obama is projecting.

Certain to be changed

The Obama budget plan, which is certain to be changed by Congress, would spend US$3.73 trillion in the 2012 budget year, which begins October 1, a reduction of 2.4 per cent from what Obama projects will be spent in the current budget year.

Of the US$1.1 trillion in deficit savings that Obama is projecting over the next 10 years, two-thirds would come from spending cuts including US$400 billion in savings from a five-year freeze on domestic programmes that account for one-tenth of the budget. The other one-third of deficit savings would come from tax increases such as limiting the tax deductions taken by high-income taxpayers, a proposal that Obama put forward last year only to have it rejected by Congress. Obama also proposes raising taxes on energy companies.

The president's projected US$1.65 trillion deficit for the current year would be the highest dollar amount ever, surpassing the US$1.41 trillion deficit hit in 2009.

- AP