Budget projects deficit will quadruple, jump to $1.75T

WASHINGTON -- Federal deficits would remain above $500 billion annually for the next decade under the budget proposed by President Obama Thursday, sending the federal debt soaring to $23 trillion by 2019.

The deficit this year would jump to a record $1.75 trillion, nearly quadrupling the 2008 figure.

Obama has added a $250 billion reserve fund to support up to $750 billion in additional asset purchases from banks and other financial institutions. That would more than double the current $700 billion effort.

The Democratic president's first budget, which will be fleshed out during the next two months, differs dramatically from those of his Republican predecessor.

The most dramatic change: inclusion of a $634 billion reserve fund to jump-start an overhaul of the nation's health care system, to be financed equally by savings in Medicare and tax increases on those earning more than $250,000 a year.

Obama would extend the "Making Work Pay" tax cut of $400 for individuals and $800 for families that was included in the two-year, $787 billion economic stimulus plan for at least the next decade, at a cost of nearly $1 trillion. He would pay for much of it with presumed revenue from a "cap-and-trade" system for industrial emissions.

In addition to raising taxes on those earning more than $250,000, Obama counts on savings from winding down the war in Iraq — nearly $1.5 trillion over 10 years. But Republicans contend those savings are from an unrealistic baseline that assumes the war would otherwise rage on at 2009 levels.

In a mid-morning appearance at the White House, Obama said his budget "is an honest accounting of where we are and where we are going."

He noted that his administration "inherited" a deficit of more than $1 trillion from the Bush administration and has to spend heavily to jump-start the economy.

"While we must add to our deficits in the short term to provide immediate relief to families and get our economy moving, it is only by restoring fiscal discipline over the long run that we can produce sustained growth and shared prosperity," Obama said. "And that is precisely the purpose of the budget I'm submitting to Congress today."

The deficit can be reduced later on by eliminating tax breaks for the wealthy and cutting unnecessary programs that are already being targeted by his administration, he said.

"There are sacrifices we're going to have to make," he said.

Obama also said his budget addresses long-term structural problems, including the rising costs of health care and reducing dependence on foreign oil. He said improving education will help Americans compete in the global economy.

Increases in the budget include expansions of the earned income tax credit and child tax credit for low-income Americans, an expanded saver's tax credit and a plan to automatically enroll people in IRAs and 401(k) plans.'

Obama said the Agriculture Department is saving "nearly $20 million" through modernizaton and streamlining the bureaucracy and that the Interior Department is saving $200 million that had been budgeted for abandoned coal mines that have already been cleaned up.

"We will end no-bid contracts that have wasted billions in Iraq, and end tax breaks for corporations that ship jobs overseas," he said. "And we'll save billions of dollars by rolling back tax cuts for the wealthiest Americans, while giving a middle class tax cut to 95% of hard-working families."

House Republicans attacked the tax increases contained in the budget, particularly a proposal to increase taxes on carbon emissions.

House Minority Leader John Boehner, R-Ohio, argued that the hikes are the wrong approach to take during the recession.

"The administration's plan is a job killer, plain and simple," Boehner said. "There has been too much spending under Republicans under the last several years but if you begin to look at what's happened over the last month … the president's beginning to make President Bush look like a piker when it comes to spending."

House Republican Whip Eric Cantor, R-Va., said in a statement that while Republicans plan to work with Obama "we must demand that Congressional Democrats don't spend imaginary money."

Cantor said "it is not just misguided, but dangerous to raise taxes on small businesses and families that can't afford to pay them. In fact, a majority of those penalized by the proposed tax increase in this budget are small businesses."

Former Bush deputy press secretary, Tony Fratto, said "trying to mask huge spending increases under the cloak of 'fiscal responsibility' is the height of audacity. Our budgets were honest, open, and transparent. Every dime spent was presented, debated, voted on, and counted."

Agencies slated to get increases under Obama's budget include the Pentagon and the departments of education, housing and urban development, State and veterans affairs. Others, including the departments of energy, health and human services, and justice wouldn't fare as well.