Obama unveils $3.8 trillion budget

By Jennifer Liberto, senior writer


WASHINGTON (CNNMoney.com) -- President Obama revealed a $3.8 trillion budget for 2011 on Monday that tries to balance two competing goals: continued government spending to boost the fragile economic recovery and controlling the nation's deficit.

"We simply cannot continue to spend as if deficits don't have consequences, as if waste doesn't matter," Obama said at a White House presentation. "It's time to save what we can, spend what we must and live within our means once again."

The budget assumes that the nation's unemployment rate will average 9.2% in 2011 and that the nation's gross domestic product grows by 3.8% next year. It also accounts for some sort of health care reform legislation being signed into law by the president.

Included in the massive package are $53 billion in tax cuts and $50 billion job-creating measures, including small-business tax cuts, as well as new investments in green technology and infrastructure programs for work on roads and bridges.

The budget proposes new tax breaks and incentives for small businesses that hire new employees or boost wages, which would cost $30 billion. There would also be tax breaks for small businesses that make new investments.

There's a one-year extension of the Making Work Pay tax breaks, originally delivered as a part of last year's stimulus package, that will cost $22 billion. The credit resulted in slightly higher paychecks for 110 million families, according to the White House.

The budget would make permanent tax cuts passed during the Bush administration for all except high-income households making more than $250,000 a year.

Other spending hikes will include adding billions more for Pell Grants to help students pay for college and making such grants an entitlement. They'd also add $6 billion for "clean energy technologies."

The administration would also spend $734 million to install 1,000 new full body scanners at airports.

At the end of the day, Obama's plan is merely a giant set of suggestions for Congress, since lawmakers are in charge of cutting checks.

It will be many months before a final budget is approved. But the next step starts Tuesday with a series of Congressional hearings, where White House Cabinet officials will begin briefing lawmakers about the president's suggestions.

"Everything has its supporters and detractors, and programs that enjoy support from well-funded proponents will be spared and those who can't afford expensive lobbyists will probably see cuts," said Craig Jennings, director of federal fiscal policy at OMB Watch, a nonprofit group that analyzes budget issues.

Attacking the deficit

White House budget chief Peter Orszag said that the White House's guiding philosophy was: "Don't make the situation any worse." He said that the budget is rooted in "paygo" principles that require new spending proposals or tax cuts be offset by spending cuts or tax hikes elsewhere. (The Senate has passed a version of paygo legislation, but it's not yet the law of the land.)

So the president's budget would reduce the nation's debt by $1.2 trillion over the next 10 years in several ways. It would let the Bush tax cuts expire for high-income households. It would also impose a "financial crisis responsibility fee" on the largest banks. The president's budget is calling for an end to fossil-fuel tax subsidies for oil, gas and coal companies.

And the budget calls for a three-year cap on non-defense discretionary spending. That move would save $250 billion over the next 10 years.

Critics such as OMB Watch -- which called the move "emptying a sea with a teaspoon" -- point out that the cap is on a small part of the total budget, leaving room for big increases on war, military and national security spending.

In fact, the president's budget will call for billions more for defense, diplomacy and homeland security agencies, even though House Speaker Nancy Pelosi said last week that some defense spending should also be subject to the freeze.

If Congress passed the budget, the deficit in 2011 would reach 8.3% of the U.S. gross domestic product -- down from a high this year of 10.6%. By 2014, it would drop to 3.9%.

The long-term goal is for the deficit to reach 3% of GDP, which many economists consider sustainable. But reaching that goals depends on the establishment of a bipartisan fiscal commission that Obama would create by executive order.

According to White House estimates, the federal government was on track to add another $10.6 trillion to the nation's debt over the next 10 years. But, should the changes from this budget be adopted, the debt accrued would be reduced to $8.5 trillion.

Reaction

The president's budget was met with mixed reviews Monday on Capitol Hill.

Senate Majority Leader Harry Reid praised the president's budget.

"Ensuring that every American who wants to work can find a job is the top priority of the American people -- and it's the top priority in President Obama's budget," said Reid, D-Nev. on the Senate floor.

But other Democrats were not as pleased with the entire budget, particularly with the cap on spending in so many categories.

"I will not agree with everything that the president has requested in this budget," said Sen. Tom Harkin, D-Iowa. "Proposed cuts for agricultural conservation will be damaging for rural America."

Rep. David Obey, D-Wis., who chairs the House Appropriations Committee, said he had no intention of allowing defense or military spending to go unchecked, "because none of them are without waste."

Republicans started gearing up attacks Monday, zeroing in on big spending.

"The President's budget spends more than any other in history, creates the largest deficits in history, and imposes the largest tax increases in history -- at a time when our country can least afford it," said House Republican Whip Eric Cantor, R-Va., in a statement Monday. To top of page

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