Obama budget cuts have little deficit impact

WASHINGTON Thu May 7, 2009 10:56am EDT

WASHINGTON (Reuters) - U.S. President Barack Obama's budget suggests $17 billion in spending cuts for fiscal year 2010, but Congress already has rejected some of those proposals and the savings do little to dent a projected $1.17 trillion deficit.

Obama on Thursday released details of the spending cuts, most of which were announced during or after the initial roll-out of his $3.5 trillion budget in February. Fiscal year 2010 begins on October 1.

Here is a look at what some of the cuts mean for deficit reduction and the chances they have of getting approval from lawmakers:

* Obama's budget calls for controversial healthcare reforms and legislation to reduce greenhouse gas emissions that contribute to global warming, but a huge fight is already underway in Congress over both initiatives.

Republicans largely oppose a cap-and-trade system for carbon emissions, calling it a disguised energy tax, and some Democrats are wary of the system's effect on the economy. Obama wants to help fight climate change by capping emissions of greenhouse gases such as carbon dioxide, or CO2, from big industries and allowing them to trade rights to pollute. Such systems are known as "cap and trade."

* Congress already has rejected Obama's proposed subsidy cuts for wealthy farmers.

* The $17 billion in proposed savings are easily lost in just the interest payments on a federal government debt that is now more than $11.2 trillion. Those interest payments are totaling hundreds of billions of dollars a year.

* Obama's cuts would be far eclipsed by the more than $94 billion in new "emergency" spending to continue paying for the Iraq and Afghanistan wars this year and to increase foreign aid and battle a possible pandemic flu.

* The U.S. budget deficit picture is worsened by the economic recession that has resulted in lower government tax receipts and huge increases in spending to try to stimulate the economy. Until a turnaround occurs, deficits are expected to continue at historically high levels.

* Budget experts believe that the only way to get deficits under control long-term is by making significant reforms to federal retirement and healthcare programs such as Social Security, Medicare and Medicaid.

* The details of Obama's requests come about a week after lawmakers wrapped up work on the very budget the president is now proposing. The Democratic-controlled Congress has passed a nonbinding $3.4 trillion budget plan for next year that embraces many of Obama's priorities.

(Editing by Will Dunham)