*Deficit for FY2009 would represent 12.3 percent of GDP
*2010 deficit would dip to $1.17 trillion
*Budget draws quick fire from Republicans
*Obama vows to slash deficit to $533 billion by 2013
By Caren Bohan and Jeff Mason
WASHINGTON, Feb 26 President Barack Obama
forecast the biggest U.S. deficit since World War Two in a
budget on Thursday that urges a costly overhaul of the
healthcare system and would spend billions to arrest the
An eye-popping $1.75 trillion deficit for the 2009 fiscal
year underlined the heavy blow the deep recession has dealt to
the country's finances as Obama unveiled his first budget. That
is the highest ever in dollar terms, and amounts to a 12.3
percent share of the economy -- the largest since 1945. In
2010, the deficit would dip to a still-huge $1.17 trillion,
With that backdrop, his budget represents a gamble that
Americans are ready for the sort of change they embraced by
electing him in November -- a shift of wealth through higher
taxes on the rich to pay for more government attention to
healthcare, education, climate change and social programs.
The coming fight with Congress -- where the Republican
opposition quickly opened fire on the plan -- will show whether
Americans weary of paying for a raft of expensive bailouts for
banks and the car industry can get on board with more hefty
doses of big government.
Obama, a Democrat, promised to get the red ink under
control even as he planned new spending priorities that veered
sharply away from the policies of his Republican predecessor
President George W. Bush.
"I don't think that we can continue on our current course.
I work for the American people, and I'm determined to bring the
change that the people voted for last November," said Obama,
who took office on Jan. 20.
Republicans condemned the plan as showing a dedication to
"tax-and-spend" policies, presaging major political fights
getting the budget passed.
"I think we just ought to admit we're broke. We can't
continue to pile debt on the backs of our kids and grandkids,"
said John Boehner, leader of the Republicans in the House of
The cost of extra borrowing to pay for the record budget
deficit pushed U.S. stocks and government debt prices down on
Thursday. The budget's healthcare plans delivered a hit to
shares in health insurers and drugmakers. [ID:nN26287108]
WORRIES OVER SPENDING
House Speaker Nancy Pelosi, a California Democrat, praised
Obama's spending priorities and chided Republicans for what she
saw as their new found interest in limited government.
"Perhaps ... they (the Republicans) have amnesia," Pelosi
said, noting that with Bush at the helm they turned budget
surpluses into deficits, in part through significantly higher
But some analysts questioned whether Obama's goals were
realistic at a time when the economy is still in crisis and the
surging deficits threaten to burden a future recovery.
"There are some good things in this budget but a lot still
seems very wasteful. The market is crumbling around us and
economies are in the tank," said Dan Cook, senior market
analyst with IG Markets in Chicago.
Obama sought to push ahead with a campaign promise of
expanding healthcare to the 46 million people who are uninsured
in the United States. His budget includes a 10-year, $634
billion reserve fund to help pay for the president's proposed
healthcare reforms -- much of it paid for by raising taxes on
those earning more than $250,000 a year.
The budget also raises the possibility of more than
doubling the government's aid to the battered financial
The administration put in a "placeholder" to buy as much as
$750 billion of assets from financial firms, which have been
nearly crippled by an overhang of bad mortgage debt. Assuming
one-third is lost, the ultimate cost to taxpayers would be $250
billion, the budget said.
Obama has not decided whether to seek that money, but if he
does, it would come on top of an existing $700 billion
financial bailout program, which has been unpopular with many
Americans who see it as rewarding Wall Street bankers who made
risky bets on mortgages securities. [ID:nN26313060]
The proposed $3.55 trillion spending blueprint for the 2010
fiscal year that begins Oct. 1 provides the broad outlines of a
more detailed one to be released in April.
While Obama has broad support since Congress is controlled
by Democrats, he could face a fight -- including among fiscal
conservatives in his own party -- about spending goals.
The deficit figure reinforced concerns the government will
need to sell record amounts of debt to pay for programs aimed
at pulling the economy out of a deep recession.
Obama set a goal of slashing the deficit to $533 billion,
or 3 percent of GDP by 2013. A rollback of the Bush tax cuts
for wealthy Americans and a planned drawdown of U.S. troops
from Iraq are expected to help rein in the shortfall.
Obama is seeking an additional $75.5 billion for wars in
Iraq and Afghanistan for the rest of the current fiscal year.
He is requesting $130 billion for military operations in the
two wars for 2010, which would be down from the roughly $140
billion he expects will be needed this year. [ID:nN26546903]
Washington spent about $190 billion on the wars in 2008.
Obama looks likely to order U.S. combat troops to withdraw from
Iraq over about 18 months, according to U.S. officials. At the
same time, he is ramping up the military effort in
Obama's budget proposal lays out spending cuts in farm
subsidies and other areas to meet the deficit-reduction goal.
[ID:nN262396]. But such programs are popular with lawmakers --
both Republicans and Democrats --from states with big
agricultural sectors who may be loath to allow cuts.
The budget includes billions in revenues, starting in 2012,
from a greenhouse gas emissions trading system. That is central
to Obama's proposals to fight global warming, which are a major
departure from the policies of Bush, who was widely criticized
by environmentalists for resisting action. [ID:nN26546903]
The $85-billion U.S. college student loan business reeled
from a budget proposal to axe the giant federally guaranteed
student loan program. In a major shift that severely undercut
shares in top student lender Sallie Mae SLM.N, the budget
called for moving most student lending into the direct-loan
program run by the U.S. Education Department.[ID:nN26263008]
The $1.75 trillion budget deficit forecast for this year
reflects shortfalls accumulated under Bush as well as new
spending proposals under the $787 billion economic stimulus
package Obama signed earlier this month.
While Obama is still basking in high approval ratings from
the U.S. public, his stimulus package and other efforts to
revitalize the economy have done little to win over Wall
Street. U.S. stocks prices hit 12-year lows this week.
(Additional reporting by Thomas Ferraro, Jeremy Pelofsky
and Emily Kaiser in Washington and Leah Schnurr in New York,
editing by Frances Kerry)