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Obama 2012 budget proposes $1.1T deficit cut over next decade

President Obama will unveil a $3.7 trillion budget request Monday the administration estimates would reduce the deficit by $1.1 trillion over the next decade.

Two-thirds of that reduction would come from spending cuts through a five-year freeze in discretionary spending first announced in Obama’s State of the Union address, as well as savings to mandatory programs such as Medicare and lower interest payments on the debt that would result from the lower spending.



Tax increases are responsible for the other third of the reduction, including a cap on itemized reductions for wealthier taxpayers and the elimination of tax breaks for oil and gas companies.

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The budget also includes calls for new spending that Obama says will help the U.S. compete in a global economy. The budget proposes $148 billion in research and development investments, would make permanent a tax credit for research and development and would launch a $50 billion in spending for transportation.

The budget includes no proposals to curb entitlement spending, which accounts for much of a growing budget deficit estimated at $1.645 trillion this year by the administration. The Congressional Budget Office has estimated a $1.5 trillion deficit for this year.

Republicans eager to cut spending have already denounced the proposals for new investments, but some of Obama’s spending proposals could find favor with business groups such as the Chamber of Commerce.

The budget comes as House Republicans prepared for a vote this week on a measure funding the government through the end of September that would reduce current spending by $61 billion compared to 2010 enacted levels. The White House has argued that cutting spending too much this year could harm an economy struggling to rebound from the recession.

Administration officials cast the budget proposal as a more responsible way to get the nation’s spending under control than what is being offered by the GOP.

“We both agree we should cut, the question is how you cut and what we cut,” one senior administration official said Sunday as details of the budget were rolled out to reporters.



The official said the administration looks forward to talks with Republicans, and, noting a deal on taxes reached in December, believes “this can be a cooperative effort.”

“That conversation will begin in earnest tomorrow,” the official said.

The White House assumes the deficit will drop by $500 billion in 2012 to $1.1 trillion because of the end of an extension of federal unemployment benefits and the end of a payroll tax deduction included in December’s tax deal.

The budget also assumes that Congress and the president will allow taxes on families with income above $250,000 to expire, which would bring the deficit down to $768 billion.



The senior administration officials claimed Sunday that the budget would allow the president to meet his pledge to cut the deficit he inherited in half by the end of his first term in office.

Officials said non-security discretionary spending would fall to 2.1 percent of GDP in 10 years, its lowest level since the Eisenhower administration.

Despite the efforts at spending reduction, the total national debt would still continue to grow from $14.5 billion in 2010 to $24.6 billion in 2012, the budget projects.

This would bring debt held by the public up to 77 percent of gross domestic product.



The new budget would reduce deficits by only a quarter of the amount proposed by the presidential debt commission in December. The president’s debt commission’s mix of spending cuts and tax increases reduced deficits by $4 trillion over 10 years.



While the budget does not propose long-term reforms to Medicare and Social Security, it does propose paying for a two-year extension of the so-called Medicare “doc fix” by new cost-control measures that would generate $62 billion in savings.



Congress regularly blocks the reduction in payments to doctors under Medicare reform and the cost of doing so has not been offset, adding to the deficit.



The budget request is the first salvo in the fight over 2012 spending. The Republican House is expected to produce its own budget resolution by April. That resolution has to be agreed to by the Senate in order to become the official guide to spending in 2012, but is not signed by the president.



The 2012 battle is beginning even as Democrats and Republicans are still trying to sort out appropriations spending for 2011, which is authorized under a continuing resolution that runs out March 4.



The House Republican spending proposal for fiscal year 2011, released on Friday, points at the fights Obama is likely to encounter with his budget request.

Republicans would make some of the largest cuts to high speed rail, clean energy and education funding — items that Obama is looking to increase in his 2012 budget request.



Besides the research and development spending, Obama would maintain Pell Grants for college students at their current levels and invest in high-speed rail so that 80 percent of the U.S. population would have access in 25 years.

The budget will call on Congress to make Social Security solvent without offering to compromise on reducing benefits, and will call for corporate tax reform without calling for that reform to raise revenue to reduce the deficit.



A senior official said that the Obama administration looks at tax reform as away to make U.S. firms more competitive, not as a way to reduce the deficit.