Q+A: Obama budget likely to fuel blame game over deficit

WASHINGTON (Reuters) - President Barack Obama's new budget, to be unveiled on Monday, is likely to prompt a fresh round of finger-pointing between Democrats and Republicans over who is to blame for the huge U.S. deficit.

A congressional source told Reuters that the White House would project a record $1.6 trillion deficit for the United States in the current 2010 fiscal year that ends September 30. That is an increase from the $1.4 trillion gap in 2009.

The budget is due out at 10 a.m. EST.

HOW BIG AN ISSUE WILL DEFICIT BE IN ELECTIONS?

Democrats and Republicans will do their best to minimize their contact with this political hot potato, so they don't get burned in the November congressional elections, which could potentially alter the balance of power on Capitol Hill.

Expect to see the blame game intensify as both parties try to persuade voters that the other side is responsible for the deficit, while portraying themselves as fiscally prudent.

Voters had a preview last week when Obama clashed with Republican lawmakers, who told him he had tripled the national debt with his last budget. Obama testily pushed back, pointing out that he had inherited a huge deficit when he took office.

Democrats are already pushing for the Obama administration to ramp up its rhetoric and do a better job of pinning the blame for the huge deficit on the Republicans.

"If we don't blame Republicans for the state of the economy, they will blame us and voters will believe them," warned one Democratic blogger.

Liberal economist and Nobel laureate Paul Krugman wrote in the New York Times that Obama had "allowed the public to forget, with remarkable speed, that the economy's troubles didn't start on his watch."

Opinion polls suggest the Republicans have had some success in convincing voters that the blame lies with "big-spending" Democrats -- a toxic label in an election year. A USA Today-Gallup poll conducted on January 8-10 found 56 percent of Americans disapproved of Obama's handling of the economy.

In his State of the Union address, Obama defended his efforts to stabilize the economy, which grew at an annual rate of 5.7 percent in the fourth quarter, and outlined a deficit-cutting proposal to freeze spending on some domestic programs for three years, saving $250 billion by 2020.

That is unlikely to deter attacks from Republicans, who recognize the soaring deficit, and the anxiety it instills in Americans, is a powerful stick with which to beat Obama and the Democrats in the run-up to the elections.

WHO IS TO BLAME THEN? (WHAT THE DEMOCRATS SAY)

Obama used numerous speeches in his first year as president to complain about the "fiscal disaster" he inherited from his Republican predecessor, George W. Bush, blaming Bush's big tax cuts and increased spending on healthcare and two wars for the $1.3 trillion deficit he faced on his first day in office.

Democrats point out that when Bush took over from President Bill Clinton in 2001, America enjoyed a $236 billion budget surplus, with a projected 10-year surplus of $5.6 trillion.

"The Bush administration's swing from surpluses to deficits added more debt in its eight years than all the previous administrations in the history of our republic combined," David Axelrod, a senior aide to Obama, wrote in The Washington Post.

Democrats say lax regulatory policies under Bush's watch set the stage for the financial crisis that triggered the worst recession in decades. Obama says he needed to dramatically increase government borrowing, which fueled the deficit, to invest in the economy and avert another Great Depression.

"By the time I took office, we had a one-year deficit of over $1 trillion and projected deficits of $8 trillion over the next decade," Obama said in his State of the Union speech.

The non-partisan Congressional Budget Office forecasts the U.S. budget deficit will shrink to $1.35 trillion, or 9.2 percent of gross domestic product, in fiscal 2010 from $1.4 trillion in 2009.

Obama has also taken swipes at the $700 billion bank bailout signed into law by Bush in 2008 and continued by the new administration. Obama said the program was flawed but the money is being repaid under his administration's stewardship.

Analysts say there are dangers for Obama in overplaying the blame game, particularly as polls suggest many Americans believe it is Obama's job to fix the economy, no matter who caused the mess in the first place. Obama, has acknowledged that, saying the buck stops with him.

WHO IS TO BLAME THEN? (WHAT THE REPUBLICANS SAY)

Bush has kept a low public profile since departing the White House, leaving it to others, such as former top aide Karl Rove, to rebut the Democrats' charges.

In a dueling opinion piece in the Wall Street Journal, Rove rejected Axelrod's view of the Bush years and hammered the Obama administration's "reckless fiscal record," saying it was on "history's biggest spending spree."

"Mr. Bush's deficits ran an average of 3.2 percent of GDP, slightly above the post-World War Two average of 2.7 percent. Mr. Obama's plan calls for deficits that will average 4.2 percent over the next decade," Rove wrote.

Republicans accuse Obama of seeking the biggest expansion of government in decades and oppose his $1 trillion plan to overhaul healthcare as unaffordable, despite Obama's insistence the program will be paid for and will not add to the deficit.

They also criticized Obama's $787 billion economic recovery plan as wasteful spending and argue that tax cuts, not more spending, were the answer to the country's ills.

Obama targeted Republicans' "reckless" fiscal policies in 2009. Expect to see Republicans go on the attack to convince voters it is Obama's big spending plans that are reckless and a threat to their future.

(Reporting by Ross Colvin; editing by Patricia Wilson, Paul Simao and Eric Walsh)