UPDATE 5-Obama budget to cut U.S. deficit by $1.1 trillion

Sun Feb 13, 2011 6:28pm EST

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* Republicans say cuts are not enough

* White House says to halve deficit by end of Obama's term (Adds budget details, quotes)

By Jeff Mason and Thomas Ferraro

WASHINGTON, Feb 13 (Reuters) - President Barack Obama's 2012 budget plan would slash the U.S. deficit by $1.1 trillion over 10 years, officials said on Sunday, but Republicans were unimpressed and vowed to push for deeper cuts in spending.

White House budget director Jack Lew said the proposal to be unveiled on Monday puts the government on track to halve the federal budget deficit by the end of Obama's first term in office, which extends through 2012.

"We are reducing programs that are important programs that we care about, and we're doing what every family does when it sits around its kitchen table: we're making the choices about what do we need for the future," Lew said on CNN.

One Democrat familiar with the document said that by 2015 or 2016, under Obama's proposal, federal budget deficits would fall to about 3 percent of GDP, from the current 9.8 percent.

But Republicans, who control the House of Representatives, said Obama's proposed cuts would not do enough to rein in the growing deficit and promised their own plan would go further.

"He's going to present a budget tomorrow that will continue to destroy jobs by spending too much, borrowing too much and taxing too much," House of Representatives Speaker John Boehner said on NBC's "Meet the Press."

Representative Chris Van Hollen, the senior Democrat on the House Budget Committee, warned that many members of Congress "are not going to like the individual" spending cuts contained in the Obama budget.

In a telephone interview with Reuters, Van Hollen said, "These are deep cuts but they're not the hatchet job we're seeing in the Republicans' 2011 reductions" that will be debated on the House floor this week.

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For full coverage of 2012 budget, click on [nN11152338]

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Among Obama's proposed budget cuts, according to a Democrat who did not want to be identified, are $1 billion in grants to large airports and $1 billion in savings by cutting federal aid to water treatment plants and other infrastructure.

The source, who is familiar with the administration's budget proposal, said that higher Medicare payments for the elderly to doctors over two years would be paid for with spending cuts totaling around $60 billion.

CONTENTIOUS DEBATE

Obama's budget proposal kicks off what is certain to be a contentious debate with Republicans, who made big gains in November's elections fueled by conservative Tea Party activists who want to cut spending and reduce the size of government.

Republican House Budget Committee chairman Paul Ryan would not say whether Republicans would oppose Obama's plan until he saw the full text.

"We'll see the details of this budget tomorrow, but it looks like to me that it is going to be very small on spending discipline and a lot of new spending so-called investments," Ryan said on "Fox News Sunday."

The budget deficit is forecast to reach $1.48 trillion this fiscal year, or 9.8 percent of U.S. gross domestic product. This would be down from 10.0 percent of GDP in 2010, but still very high for the United States on a historical basis.

The 2012 fiscal year begins on Oct. 1.

The White House intends to get two-thirds of the $1.1 trillion in savings from spending cuts and one-third from tax revenues, including closing several tax loopholes, according to sources familiar with the budget.

That figure is higher than the $400 billion in savings that Obama promised in his State of the Union address in a five-year spending freeze on non-discretionary domestic spending.

"The challenge we have is to live within our means but also invest in the future," Lew said.

For some financial analysts, the Obama proposal was a sign Democrats were serious about deficit reduction.

"It's bullish (for bonds) if it's anything, but the message is that the Democrats are on the alert after the GOP victory in November to borrow the deficit responsibility agenda. So skepticism aside, we're impressed," said David Ader, head of government bond strategy at CRT Capital Group in Connecticut.

A Democratic aide said the budget would reduce Pentagon spending by $78 billion over five years. Defense cuts would include the C-17 aircraft, the alternate engine to the Joint Strike Fighter and the Marine Expeditionary Vehicle that the Pentagon says it does not need.

Democrats and Republicans in Congress have clashed over how far to go with spending cuts to trim the deficit. Obama argues some spending increases are necessary to make the U.S. economy more competitive, while Republicans push for deeper cuts and oppose any tax hikes.

A test of whether the parties can work together will be a deadline in April or May for Congress to approve allowing more federal debt or risk the United States falling into a debt default that could cause economic havoc globally.

The White House wants to keep the debate over a long-term fiscal plan separate from the bill to raise the $14.3 trillion debt ceiling, and separate from legislation to replace a stop-gap government funding measure for this year that expires on March 4.

Boehner refused to rule out the possibility of a government shutdown when that stopgap measure runs out. "Our goal is to reduce spending, it is not to shut down the government," he said. (Additional reporting by Richard Cowan) (Writing by John Whitesides; editing by Anthony Boadle and Christopher Wilson)

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Comments (11)
ugg wrote:
This is not an Obama Idea, It is a Republican and Fox News Idea, Obama is trying to appease the Republicans and Fox News hoping to get more cooperation from them. This is a mistake because over the next ten years, the increase in world population and USA population along with inflation and deterioration will end up being a wash or possibly a crash. With inflation, population increases plus time use and the elements (normal maintenance) the only thing that will correct economic problems in our future is to increase the money supply in some way, shape or form, (different, or multiple incomes may become necessary for all Democratic Governments to correct the bookkeeping situation every Government is having trouble with, assuming theft, graft and corruption is brought under control). This means all governments and citizens need a boost in their incomes from some place other than present day industrial control over production. Present day industries are not comparable of keeping up with the work load needs, nor do they want to satisfy living expectations of all the people presently living on earth nor are they even interested in making any changes that would accomplish such a goal. Industry is living too good to want to change so Industry and Fox News along with their cohorts are continually pretending they have the answers, but their answers are nothing more than ongoing misinformation they themselves could possibly believe. What a tangled web they weave, when at first they started to deceive. Global industry are the only ones’ today that are living good and dictating how things should be done just after they were saved from financial death by the tax payers of America. How could anyone still have an inflated ego after just blowing the economy apart?
This is a true story; save it and watch it unfold as time goes on.

Feb 13, 2011 12:17pm EST  --  Report as abuse
USblues wrote:
Regarding the House republicans, what ever happened to all that talk of job creation? Why is it that everything they have proposed will only lead to less job creation? Why is it that they seem to want to balance the budget painlessly for themselves (no staff or pay cuts for themselves, military untouched) and instead on the backs of the working poor and what is left of the middle class that they and transnational corporations haven’t as yet destroyed? I guess it was all just election talk. Ten years of Bush budget cuts for the top 2 percent and no jobs created, Weeper Boehner, where are the jobs?

Feb 13, 2011 12:30pm EST  --  Report as abuse
USblues wrote:
Mr. Boehner why is it after ten years of tax cuts for large corporations and the extremely wealthy there are less jobs, at lower pay, and accelerating outsourcing? Mr. Boehner which political party is the record holder for deficit borrowing? Oh yeah, the republican, Reagan through G.W. Bush! Which president generated the highest unemployment numbers? Oh yeah, Reagan at 10.8 percent! And truthfully now, haven’t taxes actually been lowered by Obama? Oh yeah, that’s right they have! And didn’t growth, maybe meager, begin under Obama leadership after a massive recession brought on by Bush and the republicans policy? That’s right it did! Mr. Boehner, then why should we believe you, or trust your ideas, when they never seem to work except in theory and your party seems to be the one incapable of following it’s own advocacy?

Feb 13, 2011 12:48pm EST  --  Report as abuse
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