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Obama's $3.8 Trillion Budget Includes Record Deficit

ANDREW TAYLOR   02/ 1/10 11:08 PM ET   AP

Obama Budget Deficit
Obama is expected to announce a $3.8 trillion budget on Monday, including a $1.6 trillion deficit.

WASHINGTON — Spelling out painful priorities, President Barack Obama urged Congress on Monday to quickly approve a huge new shot of spending for recession relief and job creation, part of a record $3.8 trillion budget that would boost the deficit beyond any in the nation's history while only slowly beginning to put Americans back to work.

If Congress goes along with Obama's election-year plan, the nation would still end the year with unemployment pushing double digits at 9.8 percent and this year's pool of government red ink deepening to $1.56 trillion under the administration's accounting.

The spending blueprint for next year calls for tax cuts for workers and business and more aid for cash-starved state governments as well as the unemployed. The jobs initiative largely mirrors last year's stimulus bill, but is about one-third its size. The president is asking for nearly $300 billion for recession relief and job stimulus.

The budget paints a remarkably dire picture of a federal government that will have to borrow one-third of what it spends next year as it runs a deficit that still would total some $1.3 trillion.

At the same time, Obama is acutely aware that persistent joblessness is the issue most likely to spell political trouble for Democrats in this year's midterm elections – and perhaps for his own re-election chances in 2012.

The president's budget plan sees the deficit coming down by nearly $300 billion next year, and he's offering more than $1 trillion in deficit reduction proposals over the coming decade.

While proposing increases for immediate needs, he urged lawmakers to follow his lead and make cuts, even painful ones in programs dear to them. "I'm asking Republicans and Democrats alike to take a fresh look at programs they've supported in the past to see what's working and what's not, and trim back accordingly," he said.

Obama's deficit salve mixed nearly $1 trillion in tax increases on higher-income people with $250 billion in savings over a decade from a partial freeze on domestic programs. But popular benefit programs like Medicare would remain untouched.

Republicans weren't impressed.

"They're not willing to do big ideas. They're doing ideas that create perception but don't do anything big," said New Hampshire Sen. Judd Gregg, senior Republican on the Budget Committee. "The spending freeze for example. You're talking what, $10 billion on a $1.6 trillion deficit?"

Democrats, facing the prospect of major losses in November, are likely to join Republicans in balking at many of Obama's proposals. Moderate Democrats already are wary of another debt-financed economic stimulus program and may also choke on many of the recommended tax increases and spending cuts.

Obama's proposal to cut payments to wealthier farmers, for example is probably dead on arrival and his renewed push to end purchases of new C-17 cargo planes for the military is sure to incite a battle with lawmakers from California, where the planes are assembled.

Proposing a partial spending freeze, tax increases for wealthier people and a new fee on banks, the president's proposal still amounts to just tinkering at the edges of the larger budget problem.

Obama's budget presents a delicate balance between trying to cement the fragile recovery and pivoting to curb deficits that are on the rise not only in dollar figures but also as a political issue that is causing Democrats to lose popularity with independent voters.

So while pledging to tackle deficits, he also said that continuing them in the short term is necessary to help lower unemployment. We will "do what it takes to create jobs," he said. "It's essential."

His budget proposed a job creation tax credit of up to $5,000 for each new worker that businesses hire, another round of one-time $250 checks for senior citizen on Social Security and extending unemployment benefits and health insurance subsidies for the jobless through the end of the year. Obama also wants to extend a $400 "Making Work Pay" tax credit for most workers through 2011.

While White House Press Secretary Robert Gibbs spoke Sunday of a $100 billion jobs initiative, these "temporary recovery measures" in fact total $282 billion through the autumn of 2012, according to budget documents.

At the same time, Obama wants to hand off to a commission decisions on the tough steps needed to reduce deficits and slow the growth in the federal debt to levels economists deem prudent. The panel's recommendations wouldn't be due until after the midterm election.

Obama's proposal lays out a path to reduce annual deficits to about $700 billion in four years, but ideas for tax increases or cuts in popular benefit programs like Medicare or Social Security to reduce them an additional $200 billion would have to come from the commission.

"We simply cannot continue to spend as if deficits don't have consequences, as if waste doesn't matter, as if the hard-earned tax dollars of the American people can be treated like Monopoly money, as if we can ignore this challenge for another generation," Obama said.

Balancing the budget or producing surpluses of the kind from 1998 through 2001 is now seen as all but impossible. Instead, many policymakers are for a secondary goal of stabilizing the national debt in relation to the size of the economy. That generally requires keeping the deficit to 3 percent of gross domestic product. Just three years ago, the deficit stood at 1.2 percent of GDP. This year it's 10.6 percent.

Obama dropped his plan into a poisonous election-year atmosphere. Republicans in Congress immediately labeled it as a toxic mix of higher taxes, big spending and debt, saying it would still produce deficits totaling $8.5 trillion over the coming decade.

Obama inherited a difficult deficit situation when taking office amid a severe recession and financial crisis that made tax revenues plummet and caused unemployment benefits and food stamp costs to spike.

"When I first walked through the door, the deficit stood at $1.3 trillion," Obama said, citing the estimates that greeted him a year ago.

Wisconsin Rep. Paul Ryan, top Republican on the Budget Committee, acknowledged that Obama inherited a mess but said he's gone overboard with spending on pet Democratic programs.

"You can't blame everything on the past," Ryan said.

Obama now mostly owns the deficit as a political issue after passing last year's $862 billion economic stimulus bill and other major spending legislation that's earned mixed reviews with the public.

Obama would extend most of President George W. Bush's tax cuts, as they apply to middle-income earners. Married couples making more than $250,000 and individuals making more than $200,000 would see their marginal tax rates rise to as much as 39.6 percent and also lose some of the benefits they take on itemized deductions like charitable gifts and mortgage interest.

___

Associated Press writers Martin Crutsinger, Stephen Ohlemacher and Jennifer Loven contributed to this report.

(This version CORRECTS figure to $200 billion from $200 million.)

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Filed by Adam J. Rose  |