Obama budget foresees deficits for a decade

McClatchy NewspapersFebruary 1, 2010 

WASHINGTON — President Barack Obama on Monday will propose a 2011 federal budget that would spend $1.3 trillion more than the government takes in — then continue with deficits of more than $700 billion a year for at least a decade. He promised an independent commission would step in later.

His plan would spend $3.8 trillion in the federal fiscal year beginning Oct. 1, a 3 percent increase over the current year. The budget foresees the government taking in $2.6 trillion in taxes and other revenue, an 18 percent jump as the deep recession ends and a growing economy presumably boosts income

The budget also would extend temporary Bush-era tax cuts for those making less than $250,000, now scheduled to expire on Dec. 31, and the Making America Work tax cut enacted last year as a recession fighter.

Tax cuts for those making more than $250,000 would be allowed to expire, however.

Obama's other proposals include tax cuts for small business, including a cut to encourage small businesses to hire new employees and pay existing employees more, and the elimination of the capital gains tax for new investments in small business.

On the spending side, the proposal includes:

_ $33 billion for the current year and $159 billion next year for the wars in Afghanistan and Pakistan;

_ $43.6 billion for Homeland Security, a 2 percent increase, including money for 1,000 new Advanced Imaging Technology machines for airport passengers, new explosives detection equipment for baggage, and more federal marshals aboard international flights;

_ a 20 percent increase for the Department of Veterans Affairs;

_ $100 billion to cities and states for infrastructure work;

_ $28 billion for the Elementary and Secondary Education Act, a 12 percent increase;

_ $17 billion increase for Pell grants to college students.

The new budget for next year would be the third in a row with a deficit of more than $1 trillion, thanks to a flood of federal spending to stimulate the economy and rescue Wall Street as well as a drop in expected tax revenues.

Still, Obama's top budget officials said his plan would ease the flow of red ink that's been piling up since the onset of the recession.

His plan would shave $1.2 trillion off the administration's projected deficits over the next 10 years, aides said, by:

_ raising taxes on those making more than $250,000;

_ slapping a fee on big banks;

_ ending subsidies for oil, gas and coal production;

_ cutting or eliminating 120 programs;

_ freezing overall spending for three years for some federal departments and programs outside of national security, Medicare and Social Security.

Budget officials also predicted that the annual deficit as a share of the economy would shrink as the economy rebounded, from 10.6 percent in the current federal fiscal year, to 8.3 percent next year, and to 3.9 percent by the fiscal year starting Oct. 1, 2013.

Peter Orszag, director of the White House Office of Management and Budget, said Sunday evening that Obama wanted to bring the deficit down gradually in relation to the total size of the economy. That would make a "smooth landing" more likely and avoid what he called the mistake of 1937, when, he said, the government moved back toward a balanced budget in the midst of the Great Depression and triggered a recession.

Obama's budget also calls for an independent "Fiscal Commission" that would find ways to further reduce the deficit, with the goal of balancing the budget outside of interest costs by 2015.

Aides did not provide details of when Obama would name the commission, how it would work, or who might serve on it.

Obama's blueprint assumes that all of the Bush tax cuts would be extended beyond Dec. 31 — something the non-partisan Congressional Budget Office does not do since the current law ends the tax cuts at the end of this year.

The different approach allows the administration to claim it would cut the projected deficit by $700 billion over 10 years by allowing tax cuts to expire for those making more than $250,000.

The CBO already assumes those taxes are going up and factored that in to its deficit prediction.

For more McClatchy politics coverage visit Planet Washington

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McClatchy Newspapers 2010

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