Obama Budget Said to Forecast $1.6 Trillion Deficit for 2010

Feb. 1 (Bloomberg) -- The budget plan President Barack Obama is set to release today forecasts the deficit will hit a record $1.6 trillion this year before beginning to decline in 2011, a congressional aide said.

Obama will send Congress a $3.8 trillion spending blueprint that includes a mix of tax cuts and spending to boost the economy as well as aid to states. It also takes steps to rein in the deficit, which has widened as the recession cut tax revenue and the government took measures to stimulate the economy.

The administration forecasts the shortfall will decline from $1.6 trillion in the fiscal year ending Sept. 30 to $1.3 trillion in fiscal 2011, said the aide, who spoke on condition of anonymity because the figures haven’t been officially released.

Obama is putting emphasis on boosting the U.S. economy, which hasn’t recovered the more than 7 million jobs lost since the recession began in December 2007. Following up the stimulus legislation enacted last year, the president is seeking more spending on infrastructure projects and $33 billion in tax breaks and incentives to encourage small businesses to hire more workers and raise wages.

The measures to add jobs will be “probably somewhere in the $100 billion range,” spokesman Robert Gibbs said yesterday on CNN’s “State of the Union” program. Last year’s stimulus amounted to $862 billion, the Congressional Budget Office says. The House in December passed job legislation of more that $150 billion.

Economy and Deficit

The budget reflects the administration’s struggle to confront voter anxiety about a 10 percent jobless rate and the national debt surging toward $13 trillion. The result is a plan that tries to step up spending in some areas for an economic boost while slowing it over a longer period.

“To many people, they think it’s double-talk but it’s perfectly logical and consistent with economic theory,” said James Horney, a former Senate Budget Committee analyst now at the Center on Budget Policy and Priorities, a research organization in Washington.

The White House deficit projection exceeds other forecasts. The CBO has forecast this year’s shortfall at $1.35 trillion. The median of 39 analysts survey by Bloomberg News is for $1.37 trillion this year and $1.10 trillion next year.

Obama has promised to cut the deficit in half from $1.3 trillion by the end of his first term and “the president is committed to keeping that goal,” Gibbs said.

Increased Outlays

Defense and education are set to get increased funding in Obama’s 2011 budget plan while spending on some domestic programs will be frozen over three years, according to congressional and administration officials and previous announcements from the White House. The budget is subject to approval -- and modification -- by Congress.

On taxes, Obama said in his State of the Union address last week that some of the tax cuts passed under former President George W. Bush in 2001 and 2003 would be extended. “We will not continue tax cuts for oil companies, investment fund managers and for those making over $250,000 a year,” he said.

The White House wants lawmakers to give small businesses tax credits of up to $5,000 for each new worker hired as part of a $33 billion package of incentives. This would be folded into a stimulus program that would “add infrastructure spending,” Gibbs said.

In an extension of last year’s stimulus, the administration proposes making permanent the Build America Bonds program. The federal government would pick up the tab for 28 percent of the interest costs from taxable bonds issued by state and local governments, according to a Treasury Department official.

Aid to States

The budget also will call for spending $25 billion to provide states with an additional six months worth of funding to help pay for the government’s Medicaid health insurance program for the poor.

On energy, the administration supports expanding nuclear power by tripling loan guarantees for new reactors to more than $54 billion, an administration official said. The 2011 budget will add $36 billion to the $18.5 billion already approved for nuclear-power plant loan guarantees.

Obama will propose a defense budget of about $708 billion that includes $159 billion for the wars in Iraq and Afghanistan, four officials said on Jan. 22. The administration has said it plans to spend $161 billion on the wars this year.

While spending would rise in many areas of the federal catalog, the administration has announced it would seek a three- year freeze on most spending for domestic programs that Congress enacts each year, for a savings of as much as $15 billion in the first year and an estimated $250 billion over 10 years.

Non-defense discretionary spending, about 17 percent of the budget last year, is projected to grow this year by 7 percent, excluding the costs of last year’s stimulus package, according to the CBO.

In 2009, those expenditures grew by 5 percent, according to the agency. The increases are much higher if the stimulus package is included, with this year’s hike totaling 17 percent and last year’s increase, 11 percent.