Obama budget curbs deficit, sets up fiscal fight

WASHINGTON Mon Feb 14, 2011 10:31am EST

WASHINGTON (Reuters) - President Barack Obama proposed a budget on Monday that would cut the deficit by $1.1 trillion over the next 10 years, but Republicans said it did not curb spending deeply enough to meet their demands.

Conservatives say Obama, a Democrat, is a tax-and-spend liberal, and they aim to make the 2012 presidential election a referendum on his fiscal track record.

Details of the proposal provided by the White House before its official release described a $3.729 trillion budget in which the deficit rose to $1.645 trillion in fiscal 2011, then fell sharply to $1.101 trillion in 2012.

This trend would trim the deficit as a share of the U.S. economy to 3.2 percent by 2015 from 10.9 percent this year, and meet a pledge Obama made to his Group of 20 partners to halve the deficit by 2013. The news was well-timed, with G20 finance ministers meeting in Paris on Friday and Saturday.

"You've got both parties looking to reduce the deficit, it at least says that they are both looking at the same idea, that if we want to get elected we need to be deficit responsible," said David Ader, head of government bond strategy at CRT Capital Group in Stamford, Connecticut.

The budget shows the deficit steadying around 3 percent of gross domestic product from 2015 onward, slowing the rate at which the U.S. adds to its debt, although it will still climb to 77 percent of GDP by 2021, up from 72 percent in 2011.

Obama's budget for fiscal 2012, to be formally released at 10:30 a.m. EST (1530 GMT), is a proposal to Congress laying out the president's policy priorities. Months of wrangling with the Republican opposition in Congress will now follow.

"We're just at the beginning of a long process," White House budget director Jack Lew told ABC's 'Good Morning America'. "We look forward to engaging with the Congress and working in a bipartisan way to actually solve the problem."

The White House sees a December tax pact forged between Obama and Republicans as evidence they can work together, but the initial reaction from the other party was skeptical.

"The president talks like someone who recognizes that spending is out of control, but so far it hasn't been matched with action," U.S. Senate Republican leader Mitch McConnell said in a statement.

"Americans don't want a spending freeze at unsustainable levels. They want cuts, dramatic cuts. And I hope the president will work with us on achieving them soon."

Republicans have already unveiled much tougher proposals aimed at reining in rising U.S. debt, which is set to hit a legal limit in coming months. Failure by lawmakers to agree on funding government operations after a March 4 deadline expires could result in the government shutting down.

That would replay a 1995-1996 showdown between a Democratic president and a Republican-led House of Representatives that ultimately backfired on Republicans. The public sided with then-President Bill Clinton, who won re-election.

"We want to see what happens with a negotiation with the Republicans," said Greg Anderson, G10 strategist at CitiFX in New York. "Are we going to get another situation as last December with Obama spending increases and Republican tax breaks or actually get true signs of greater fiscal responsibility?" he said.

GROWTH LIFTS REVENUE

Two thirds of Obama's deficit savings come from spending cuts and expected reductions in interest payments as the deficit declines. The rest comes from higher revenue, in part as provisions in a December pact on payroll taxes and jobless aid expire, and also as stronger growth lifts tax revenue.

The budget also proposes ending 12 tax breaks for oil, gas and coal companies to raise $46 billion over 10 years and allowing tax cuts for wealthier Americans to expire in two years' time, although the extra revenue this increase in tax rates was not counted in the plan's projections.

Obama plans to freeze non-security discretionary spending for five years, lowering the deficit by $400 billion over 10 years. That pledge, unveiled in Obama's State of the Union address last month, means cuts in more than 200 federal programs. These will save $33 billion in fiscal 2012, which starts on October 1, 2011.

Defense spending in the budget will be cut by $78 billion over five years, as previously announced by Obama, and will be 5 percent lower in 2012 compared with the level sought in 2011, thanks in part to the withdrawal of U.S. troops from Iraq.

"What I'd say about this budget is that it has a lot of pain. I'm not sure what number I'd give it. But it does the job. It cuts the deficit in half by the end of this first term," the White House's Lew said.

(Additional reporting by David Morgan, Editing by Sandra Maler)

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Comments (14)
socos435 wrote:
Which war did we start? Do you not remember that we were attacked on 9/11? Do you want to fight Al Qeida here on our soil? They will stop at nothing to bring this country and our way of life back to the 8th century.

Feb 14, 2011 8:29am EST  --  Report as abuse
Curly wrote:
What dose the US owe now, 13-14 trillion dollars? At the current time the budget will add 2.6 trillion to what we owe. Project that out for a decade the US will owe around $25 trillion dollars. What will the US dollar mean then? It will be a third world country!

Feb 14, 2011 8:32am EST  --  Report as abuse
LenBailey wrote:
Cutting the deficit isn’t the same as reducing the debt — we need to cut spending. It’s time the government started living within its means … and not by simply dumping more paper dollars into circulation. And it’s our job as citizens to enforce this upon our elected and appointed officials.

Feb 14, 2011 8:35am EST  --  Report as abuse
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