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Barack Obama

Obama seeks 5 percent cuts in some programs

WASHINGTON (Reuters) - President Barack Obama is demanding 5 percent budget cuts across many government agencies, the White House said Tuesday, as he seeks to show fiscal discipline while keeping an economic recovery on track.

U.S. President Barack Obama attends the 2010 Kalamazoo Central High School graduation at Western Michigan University in Michigan, June 7, 2010. REUTERS/Larry Downing

“We are asking each agency to develop a list of their bottom 5 percent performing discretionary programs, as measured by their impact in furthering the agency’s mission,” White House budget director Peter Orszag told the Center for American Progress think tank.

“In addition, to ensure that we can meet the president’s absolute insistence on a freeze for non-security agencies while funding priority areas, we are asking non-security agencies to specify how they would reduce their budgets by 5 percent.”

The instruction was issued as part of the White House’s budget guidance for the fiscal year 2012. Orszag said it would be applied flexibly to ensure the overall target was met.

Financial markets have been battered by concerns over the sustainability of government debt levels in Europe. The United States has so far not suffered from similar investor doubts, but policymakers fear that there could yet be spillovers.

In addition, Americans worry the country’s record deficit will force tax hikes in the future. Such concerns have complicated Obama’s bid to ensure a solid recovery from the deep U.S. recession after a global financial crisis in 2008.

The U.S. budget deficit hit $1.4 trillion last year and is projected at $1.6 trillion this year as the recession and the costs of Obama’s emergency action to restart growth are felt.

A new jobs bill to renew expiring unemployment benefits was pared back to gain support from fiscally conservative Democrats in the House of Representatives.

The bill, which would also boost taxes on investment fund managers and extend business and individual tax breaks, will add $31 billion to the deficit, based on total outlays $80 billion. It is still before the Senate.

DEMAND PULL

The White House strongly backs measures to extend jobless aid and ease the financial pain of cash-strapped states. It has also urged Germany and other European partners in the G20 not to forsake growth as they tackle deficits. The Group of 20 industrialized powers met in South Korea earlier this month.

Obama’s White House faces a delicate task in convincing other countries to keep pumping up demand while convincing investors, whom the country relies upon to finance its deficit, that the United States will get its own debts under control.

Orszag said the trade-off between boosting jobs or trimming the deficit was a false choice, and the government must ease unemployment while also taking steps to tackle the budget deficit over the medium and long term.

“It is a question of timing. We have to move aggressively to address the jobs deficit now. We have to be acting aggressively to bring down the outyear deficits. Because if we don’t do that, we’re going to be creating another crisis, and no one wants that,” he said.

Obama has gathered a bi-partisan deficit commission to come up with recommendations on how to bring down the deficit and reverse the current projections for mounting national debt. It’s recommendations, which are expected to combine calls for spending cuts and tax increases, are due in December.

Republicans have seized on huge budget deficits to attack Obama’s handling of the economy in a congressional election year in which they are seeking to overturn Democratic majorities in both houses of Congress.

“The two things that are growing fastest in this Democrat economy are the size of the federal government and the crushing burden of the national debt,” said Senate Republican leader Mitch McConnell following Orszag’s remarks.

Editing by Bill Trott and Eric Beech

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