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Obama unveils budget; Republicans want more cuts

President Barack Obama unveiled his $3.73 trillion spending plan Monday, a budget proposal that is certain to ignite a political battle with Republicans who say it is too timid about reducing the spiraling US debt.

world Updated: Feb 14, 2011 21:38 IST

President Barack Obama unveiled his $3.73 trillion spending plan Monday, a budget proposal that is certain to ignite a political battle with Republicans who say it is too timid about reducing the spiraling US debt.

Speaking at a school in Baltimore, Maryland, the president said that his proposed budget will allow him to keep his promise to cut the nation's budget deficit by half at the end of his first term in office, which has two years to run.

Obama said his spending plan for the fiscal year beginning in October will reduce federal outlays - as a percentage of gross domestic product - to their lowest level since since Dwight D. Eisenhower was president in the 1950s.

The budget issue, always contentious, is more so in this spending cycle with the arrival of new Republicans backed by the low-tax, small-government tea party movement in the House of Representatives. Republicans retook control of the House after November elections on the promise of cutting government outlays and reducing Washington's impact on the Americans' lives.

The spending outline that finally is adopted will be a result of heated negotiations between House Republicans and the Democratic White House, but proposals from each side display the great distance separating them as they begin haggling.

White House budget writers contend the budget plan for the year beginning Oct. 1 puts America on course to reduce projected deficits by about $1.1 trillion over the coming 10 years. The Obama plan represents a reduction of 2.4 percent from what the administration projects will be spent in the current budget year. Resurgent Republicans are sharpening their pencils, meanwhile, on cuts of $100 billion in the current fiscal year that ends Sept. 30. Regardless of the outcome - which at this point is an argument over spending priorities now as against outlays in the coming fiscal year - neither Republicans nor Obama's Democrats have had the courage to take on an overhaul of the tax code or reductions in defense and domestic spending or Medicare and Social Security, programs that are a social safety net for older Americans. That spending consumes roughly 80 percent of the total annual government outlay.

Obama's budget reveals no willingness to take the first step in the far-reaching deficit-reduction plan written in December by his fiscal commission. It recommended specific cuts to those politically sacrosanct programs and tax changes that effectively would raise government revenues. The commission plan outlined savings of $4 trillion over a decade.

As a matter of perspective, the 2011 budget deficit is forecast to hit $1.65 trillion, the highest on record. Overall U.S. government indebtedness is now is $14.1 trillion. Before releasing next year's spending plan, Obama had already promised to freeze the budgets of agencies that oversee domestic programs at 2010 levels and freeze federal salaries. That would normally be seen as an extremely austere measure, but it falls far short of attempts by tea party-backed House Republicans to slash tens of billions of dollars in such programs, returning them to levels when Obama took office two years ago. The Republicans say Obama's freeze plan leaves in place a generous 24 percent increase in public benefits awarded by Democrats over the past two years. On Sunday, House Speaker John Boehner sent a letter to Obama urging the president to support Republican efforts to make deep cuts in this year's budget as a down payment in the effort to attack soaring deficits.

The Republican wrote that the path to prosperity for the country means "liberating our economy from the shackles of out-of-control government spending and big government." Accompanying Boehner's letter was a statement endorsed by 150 economists that called for immediate action to reduce spending.

In a television interview, Obama's budget director Jacob Lew refused to say whether the administration would support Boehner's proposal.

In his weekly radio and Internet message to the nation on Saturday, Obama promised the government will have to tighten its belt.

"This budget asks Washington to live within its means, while at the same time investing in our future," he said. "It cuts what we can't afford to pay for what we cannot do without. That's what families do in hard times. And that's what our country has to do too."

But budget specials say the president's spending plan is unlikely to even meet his own goal set last year of reducing the deficit to 3 percent of the size of the economy by 2015.

The budget proposes program terminations or spending reductions for more than 200 programs at an estimated savings of $33 billion in 2012. Programs targeted for large cuts included Community Development Block Grants, trimmed by $300 million, while a program that helps pay heating bills for low-income families would be cut in half for a savings of $2.5 billion while a program supporting environmental restoration of the Great Lakes would be reduced by one-fourth for $125 million in savings.

The biggest tax hike would come from a proposal to trim the deductions the wealthiest Americans can claim for charitable contributions, mortgage interest and state and local tax payments. The administration proposed this tax hike last year but it was a nonstarter in Congress.

Skeptics question Obama's income forecasts that depend on measures such as eliminating tens of billions of dollars in tax breaks for oil companies - even though such ideas went nowhere under Democratic control of Congress and have even less of a chance now. Obama wants to use such proposals, in conjunction with spending cuts, to shift money to spending on education, infrastructure, science and research that he says is needed to boost U.S. competitiveness.

That seems an overwhelming challenge given the political lineup in Congress.

For example, as Obama seeks $53 billion for high-speed rail over the next few years, House Republicans are trying to pull back $2.5 billion that's already been promised. He's seeking increases for his "Race to the Top" initiative that provides grants to better-performing schools; Republicans on Friday unveiled a five percent cut to schools serving the disadvantaged.