Obama's budget would add $13 trillion to national debt

McClatchy NewspapersFebruary 14, 2011 

WASHINGTON — President Barack Obama proposed a $3.73 trillion budget Monday for fiscal 2012 that he said will start reining in runaway budget deficits, but his plan envisions the gross national debt swelling by almost $13 trillion over a decade.

Obama's budget sets up a clash with the Republican-led House of Representatives over how to recover from the deep recession of recent years and strengthen the economic foundation for the future, with federal spending the pivotal battleground.

Obama would include spending boosts for education, infrastructure and research that he says are critical for recovery, but he'd cut overall federal spending by $90 billion from last year in fiscal 2012, which begins on Oct. 1.

He also said he'd cut this year's record $1.65 trillion deficit to $1.1 trillion next year, but he avoids tough choices on such big issues as Medicare, Medicaid and Social Security, which together are driving the national debt skyward.

His blueprint envisions federal spending jumping by $363 billion in the current year, dropping by $90 billion the next year, then rising again by an average of $218 billion a year for nine years. That would leave the government $26.35 trillion in debt after 10 years — an increase of $10.87 trillion over this year, and $12.82 trillion over last year.

Bottom-line analysts called his budget too timid to address the simmering debt crisis that could weaken America economically and strategically if left untamed.

"You're treading water when you are about to go over Niagara Falls," said Robert Bixby, the director of the Concord Coalition, a nonpartisan budget watchdog group.

Republicans denounced Obama's budget.

"The president's budget will destroy jobs by spending too much, taxing too much, and borrowing too much," said House Speaker John Boehner, R-Ohio.

"We cannot tax, spend and borrow our way to prosperity," said House Budget Committee Chairman Paul Ryan, R-Wis., adding that Obama's proposal would increase taxes by $1.6 trillion over 10 years.

The House will vote this week on a proposal to cut $61 billion in spending from the current year — which would be $100 billion less than the budget Obama proposed for the current fiscal year, which began on Oct. 1, 2010.

Beyond that, they plan to cut more spending from Obama's proposal for the next fiscal year and beyond. House Republicans will propose details of their budget plan in the next several weeks, although final terms will have to be set in later negotiations with the Democratic-led Senate and Obama.

The coming clash could lead to a grand bargain where both sides negotiate compromises on the country's big fiscal issues — or to a government shutdown if they can't agree.

In a gamble, Obama declined to propose the kinds of major budget changes that his own bipartisan commission said in December were critical to averting a debt crisis, such as raising the retirement age for Social Security.

In a speech Monday in Baltimore, Obama acknowledged that his new budget proposal is only "a down payment" toward needed broader steps down the road. He noted that his bipartisan commission said the only way to get the job done is to tackle spending on all fronts — including health care, defense, and ending tax loopholes. He said he's "looking forward to working with members of both parties" on future deficit-control measures.

White House Budget Director Jack Lew said Obama avoided making any specific proposal on big budget problems such as Social Security out of fear that it would be a target for criticism and not a catalyst for agreement.

"I worked on Social Security reform in 1983. I also worked on it in 1981," Lew said Monday. It went nowhere in 1981, but the 1983 bipartisan effort yielded an overhaul that rescued Social Security for a generation.

"When a president came forward with a proposal, it reflected that president's point of view, and it set the process back, not forward. It took years to get back to the point where the parties could come together, and that was facing an imminent financial crisis at the time," Lew said.

Now, Lew said, Obama "set a tone for the discussion so that we can engage in a responsible way. I believe that's the way you have effective discussions."

Obama framed his proposal as one that would help create jobs, while starting to address the budget scars left by two wars and a recession that saw tax revenues drop and spending jacked up to bail out banks and auto companies and stimulate the economy.

"The fiscal realities we face require hard choices," he said in his budget message to Congress. "A decade of deficits, compounded by the effects of the recession and the steps we had to take to break it, as well as the chronic failure to confront difficult decisions, has put us on an unsustainable course. That's why my budget lays out a path for how we can pay down these debts and free the American economy from their burden."

Obama noted that the budget deficit for the current year would reach $1.65 trillion, the third trillion dollar-plus deficit in a row, and a record. That would represent 10.9 percent of the economy, the highest since World War II.

He proposed spending $3.73 trillion next year, down $90 billion.

He said defense spending would drop by 5 percent next year, driven in part by the drawdown of troops from Afghanistan and Iraq.

He also proposed $33 billion in cuts to domestic programs, including $2.5 billion from the program that helps poor people pay heating bills, $1 billion for airports, and nearly $1 billion for water treatment plants.

No domestic item was too small to cut; even Washington's National Zoo would be cut 2 percent, or $500,000, eliminating a Kids' Farm that introduced young children to farm animals.

He'd offset the domestic spending cuts with increases, however. Among the increases: $50 billion for roads, bridges and railways, and $4.5 billion for education.

Obama's proposed budget for next year would cut the deficit sharply, but temporarily, to $1.1 trillion from this year's $1.645 trillion. Most of that improvement would come from a $453 billion jump in taxes, some from a recovering economy, and some from the end of a one-year cut in the Social Security payroll tax paid by all workers. Obama proposes to let it expire so those taxes go back up next Jan. 1.

As for fighting deficits, Obama said he'd pare back projected deficits by $1.1 trillion over the next 10 years, two-thirds from restraining spending and one-third from tax increases.

He'd save $400 billion by freezing overall spending for domestic programs that don't protect national security and aren't on spending auto-pilot, such as Social Security and Medicare.

Obama boasted that his plan would reduce the non-security domestic discretionary share of the budget to its lowest share of the economy since Dwight Eisenhower was president in the 1950s. He didn't mention that that's only 10 percent of the total budget.

He also proposed cutting defense spending by $78 billion over five years, much of it from weapon programs such as a Marine landing craft and a new engine for the Joint Strike Fighter.

He proposed raising taxes on several fronts. He urged Congress to limit tax deductions for the wealthy, saying he wants to use the money to finance a three-year fix of the Alternative Minimum Tax so it doesn't force middle class earners to pay more.

He also proposed letting the Bush-era tax cuts expire at the end of 2012 for those making more than $200,000, or $250,000 for couples — while making permanent the tax cuts for those making less than $200,000. That would add to the deficit.

(Kevin G. Hall contributed to this article.)

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