The White House expects only modest growth for the US economy over the next two years, restrained by global economic weakness, according to its annual budget proposal released today.
The proposal also foresees steadily increasing budget deficits, after several years of reduction, unless Congress passes a package of reforms that will increase taxes on the country’s wealthiest.
President Barack Obama’s USD 4.15 trillion budget proposal for fiscal 2017, starting from October 1 this year, sees the US economy growing at 2.6 per cent this year and around the same pace in 2017.
That was slower than the forecast a year ago, the effect of unexpectedly weak growth elsewhere in the world and the remnant effects of the 2008-09 Great Recession.
“The United States right now has the strongest, most durable economy in the world,” the White House said in the budget.
However, growth remains only moderate “due in part to the special nature of the most recent recession,” which has left many households and businesses still struggling to bring down debt burdens.
In addition, it said, “weakness abroad, in Europe and in large emerging markets, is also likely to affect growth in the next couple of years.”
The budget, with a five percent increase in spending over the current year, sees the US fiscal deficit holding at 3.2-3.3 per cent of gross domestic product through 2018 and then starting to rise toward an unhealthy 5 per cent by 2026 if reforms on taxes and spending are not implemented.
Rising costs from social security retirement payments and health care for an ageing society will mount over that period, adding to the fiscal shortfall.
On the other hand, the White House said that by cutting tax loopholes and special breaks for the wealthy, reforming business and capital gains taxes, and adding a USD 10 a barrel tax on crude oil, the deficit can be held below three percent of GDP without hurting the US economy with hefty spending cutbacks.
The budget, which will have to be approved by a Congress perennially hostile to Obama’s reform proposals, calls to end the “sequester” automatic spending reductions agreed in 2013 amid a grinding battle over the government’s finances between Democrats and Republicans.
“As the American people work to continue our economic and fiscal progress, it is critical that the federal government support, rather than impede, economic growth,” the budget says.
“That means ending the harmful spending cuts known as sequestration, which limit the ability to invest in the building blocks of long-term economic growth, like research and development, infrastructure, job training, and education.”
To offset any increase in spending, the White House said its tax, immigration and healthcare reforms would reap USD 2.9 trillion in savings over the next 10 years.