Obama unveils $1.75-trillion deficit budget

US President Barack Obama on Thursday unveiled a $3.55 trillion budget for the fiscal 2010, a spending plan that outlines big investments in energy, education, defense, health care and the ailing financial industry.

The budget increases taxes on the wealthy but still forecasts a deficit of $1.2 trillion, though the president and his budget director Peter Orszag said the administration has identified $2 trillion in long-term reductions to keep with the president's pledge of halving the deficit by the end of his first term.

In addition to next year's spending, Obama proposed more immediate changes that would push spending to $3.94 trillion in the current year, up 32 per cent from a year ago. That would result in a record deficit of $1.75 trillion, nearly four times last year's record $455 billion, or 12.3 per cent of US gross domestic product.

The deficit would remain near $1 trillion over the next two years before dropping to $581 billion in 2012 and $533 billion in 2013, the year that Obama has pledged to cut in half the deficit he inherited.

Earlier, ahead of a Fiscal Responsibility Summit at the White House on 23 February, Obama pledged that he would cut the US budget in half by the end of his first term, employing the "pay-as-you-go" principle that helped balance the budget in the 1990s.

Congress received the 140-page summary of the budget for fiscal year 2010 on Thursday. The full details are expected in April.

The government's fiscal year runs from October of one year to September of the next.

''We must add to our deficits in the short-term to provide immediate relief to families and get our economy moving,'' Obama reminded his fellow countrymen. If the deficits are not dealt with, "we risk sinking into another crisis down the road," he said.

The budget also sets aside a 'reserve fund' of $634 billion as a 'down payment' on the costs of universal health care coverage over 10 years, and $750 billion for the Treasury Department to purchase financial assets of struggling banks, about $50 billion larger than the first bank bailout.

Obama sets aside $75 billion in spending on Iraq and Afghanistan through September, the end of the current budget year, $130 billion in spending on Iraq and Afghanistan for fiscal year 2010 and $533.7 billion for Department of Defence.

The budget also includes substantial investments in renewable energy ($26.3 billion) and education ($46.7 billion).

The administration did try to pacify the mood saying that it has no current plans to request the extra money to prop up the banks, but if it does, the $750 billion in rescue funding is likely to cost taxpayers only $250 billion as the government expects to get a return on some of the money it would shell out for troubled assets.

The budget will impose the Clinton-era tax rates of 36 per cent and 39.6 per cent for couples earning more than $250,000 and individuals earning more than $200,000. For taxpayers who earn less than that, the budget seeks $770 billion in tax cuts or tax refunds.

Democrats noted that Obama's blueprint would not raise individual tax rates for nearly two years - and even then, only the wealthiest households would take a hit, as he had pledged during the campaign. The blueprint would also change capital gains tax rates to 20 per cent, up from 15 per cent, while eliminating capital gains for small business.

The president said he is beginning the long-term task of restoring fiscal discipline despite massive deficit spending that he claimed was necessary to kick-start the economy.

''There are some hard choices that lie ahead,'' Obama said. ''We're going to go through our books, page-by-page, line-by-line to eliminate waste and inefficiency.''

In introducing the budget, Obama slammed what he called a 'dishonest accounting' of the costs of US wars.

"Large sums have been left off the books, including the true cost of fighting in Iraq and Afghanistan. And that kind of dishonest accounting is not how you run your family budgets at home; it's not how your government should run its budgets either."

''While we must add to our deficits in the short term to provide immediate relief to families and get our economy moving, it is only by restoring fiscal discipline over the long run that we can produce sustained growth and shared prosperity,'' Obama said just before the budget was released.

Obama, in office for about five weeks, will release a more detailed budget in April. He called the outline ''an honest accounting of where we are and where we intend to go.''

Farm subsidies to be axed
Some of the proposed spending cuts range from outdated farm subsidy and weapons programmes and cut in federal subsidies to student loan providers by $48 billion.

The administration is aiming to save $9.8 billion in agricultural costs over 10 years by phasing out direct payments to farmers with sales revenues of $500,000 or more per year.

On the economy, the administration forecasts the gross domestic product, the value of all goods and services, will contract 1.2 per cent for the entire year, reflecting the deepening recession, and rebound to an average growth rate of 3.2 per cent in 2010.

The US unemployment rate likely will average 8.1 per cent this year, declining to 7.9 per cent in 2010, suggesting a slow rate of jobless people returning to work, according to the administration.

Inflation will be 0.6 per cent this year, the budget office said, and increase to 1.6 per cent next year.
 
Republicans denounced the budget as excessive and misdirected, depicting the proposed spending plan as a poor example of fiscal discipline.

"I agree with the president that we need to make some tough decisions regarding how we spend taxpayer dollars. Unfortunately, at this juncture, while the American people are tightening their belts, Washington seems to be taking its belt off," Senate minority leader Mitch McConnell said in a statement.

"There's been too much spending under the Republicans over the last couple of years, but if you begin to look at what's happen over the last month and what's being proposed in this budget, the president's beginning to make President Bush like a piker when it comes to spending," said the House minority leader John Boehner.

House speaker Nancy Pelosi, however, praised the budget as 'a statement of our national values'.

"The budget is consistent with the president's message of accountability, fiscal responsibility, transparency from the standpoint of how we approach it. It reflects the values that he conveyed about investing in education and energy and health care; also in how we grow our economy for infrastructure and how we support our troops," said Pelosi, D-California.