Obama Offers $3.8 Trillion Budget With Focus on Jobs

Feb. 1 (Bloomberg) -- President Barack Obama proposes a $3.8 trillion fiscal 2011 budget today that calls for $100 billion in additional stimulus spending and projects this year’s deficit will hit a record $1.6 trillion.

The plan would reduce the shortfall in part by imposing more than $800 billion in higher taxes and fees on those earning more than $250,000, banks that benefited from the financial industry bailout and the oil, gas and coal industries.

The spending blueprint being sent to Congress for the fiscal year that begins Oct. 1 reflects the administration’s struggle to boost the economy and job growth -- both top concerns of voters -- while tightening the government’s belt to reduce deficits in the years ahead.

“We’re trying to accomplish a soft landing in terms of our fiscal trajectory,” Peter Orszag, director of the White House Office of Management and Budget, said in a briefing.

The $1.6 trillion deficit forecast for the current year represents 10.6 percent of the U.S. gross domestic product, making it the biggest by that measure since World War II, according to administration figures. The deficit in 2009 was $1.4 trillion.

Deficit Projections

The White House deficit projection exceeds other forecasts. The Congressional Budget Office 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.

The administration’s deficit projections for 2011 and beyond are higher than the White House previously forecast because “the economic conditions were much worse” than predicted when Obama first took office, Orszag said in a Bloomberg Television interview this morning.

To address the shortfall, the administration wants to impose a three-year freeze in “discretionary” spending outside of defense and security. The freeze won’t be across-the-board. Some programs, such as education and research and development initiatives, would get as much as a 6 percent budget increase. The budget is subject to approval by Congress.

Obama’s plan also calls for creating a special debt commission to recommend steps to cut the deficit and tougher budgeting rules in Congress.

National Debt

The result would be a deficit that declines next year to $1.27 trillion and to $828 billion in 2012, according to the budget. In subsequent years, through 2020, the annual deficit would still total between $700 billion and $1 trillion. By 2020, the publicly held debt would approximately double to $18.5 trillion, according to estimates.

Orszag said the administration intends to slowly phase in its deficit-reduction plans, saying cutting too much too soon might stifle the economic recovery.

“The worst thing we could do is act too quickly and throw the economy back into recession,” Orszag said. “But we do need to be starting, and so that’s why you see this selective approach where we are beginning the process in certain components of the budget.”

Representative Paul Ryan of Wisconsin, the senior Republican on the House Budget Committee, called the budget “a plan for more of the same -- a very aggressive agenda of more government spending, more taxes, more deficits and more debt.”

Extending Stimulus

The plan calls for extending several elements of last year’s economic stimulus as part of either a new jobs package or through subsequent legislation. It proposes spending $61 billion to extend for one year the administration’s “Making Work Pay” tax credit which provided $400 to individuals and $800 to couples. It is set to expire this year.

The administration’s economic forecasts for economic growth, unemployment and inflation will be released later this morning.

Obama proposes to make permanent the Build America Bonds program, in which the federal government subsidizes infrastructure projects by picking up the tab for 35 percent of the interest costs from taxable bonds issued by local governments. It calls for reducing that subsidy to 28 percent. The budget would also spend $25 billion to provide state governments with six additional months of help paying their Medicaid bills.

Higher Taxes

The bulk of the higher taxes would come by allowing tax cuts passed under former President George W. Bush for those earning more than $250,000 to lapse at the end of this year. That would raise $678 billion, according to the administration.

A fee imposed on 50 of the biggest financial firms such as JPMorgan Chase & Co. and Bank of America Corp. would raise another $90 billion. Eliminating tax breaks for fossil-fuel industries would produce another $40 billion.

Freezing some domestic programs for three years and then holding it at the rate of inflation for the rest of the next decade would save $250 billion, the administration estimates.

That would represent an abrupt shift in priorities. Non- defense discretionary spending is projected to grow this year by 7 percent not including the costs of last year’s stimulus package, according to the CBO.

Seeking Savings

The increase totals 17 percent once the stimulus package is included, according to CBO estimates. The administration’s plan also calls for 120 program terminations, reductions and other savings it estimates would save $20 billion.

It would provide $33 billion in “emergency” funding this year to help pay for the administration’s troop buildup in Afghanistan. Next year, war costs would amount to $159.3 billion. The basic defense budget would amount to $549 billion, which represents a 1.8 increase adjusted for inflation. The Department of Homeland Security would get a 2 percent increase.

The budget has more than doubled from $1.9 trillion in 2001, according the OMB’s historical data.