President Barack Obama proposes a $3.8 trillion fiscal 2011 Budget on Monday 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.
To boost jobs, Obama is setting aside $100 billion in 2010 in tax credits aimed at small businesses as well as investments in clean energy and infrastructure, before starting to tighten the country?s fiscal belt the following year.
Dubbed an old-style liberal tax-and-spender by his Republican opponents, Obama is under pressure to convince investors and big creditors like China that he has a credible plan to control the country?s deficit and debt over time.
While maintaining policies this year aimed at protecting a still-fragile economic recovery, in common with other major industrial nations, Obama will save money by curbing 120 federal projects, including a powerfully symbolic mission to return to the moon, but invest more in education and research.
Republicans complained about Obama?s proposed tax increases and said the huge projected deficits showed he had failed to get government spending under control. But administration officials argued that Obama inherited a deficit that was already topping $1 trillion when he took office and given the severity of the downturn, the President had to spend billions of dollars stabilising the financial system and jump-starting growth.
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% of the US GDP, making it the biggest by that measure since World War II, according to administration figures. The deficit in 2009 was $1.4 trillion.
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 programmes, such as education and research and development initiative, would get as much as 6% Budget increase. Obama?s plan also calls for creating a special debt commission to recommend steps to cut the deficit and tougher budgeting rules in Congress.
The result would be a deficit that declines next year to $1.27 trillion and to $828 billion in 2012, according to a summary provided by the administration.
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.