Obama budget to cut $1.1 trillion in deficits

By Jeanne Sahadi, senior writer


NEW YORK (CNNMoney) -- President Obama on Monday will propose a 2012 federal budget that the White House says will cut deficits by $1.1 trillion over 10 years.

The president's request calls for a mix of strategic spending to boost U.S. competitiveness and selective belt-tightening intended as a "down payment" on serious deficit reduction, according to his budget director Jacob Lew, who spoke on CNN's "State of the Union."

Full details on the budget will be released on Monday morning.

So it's not clear yet where all of the estimated $1.1 trillion in deficit reduction will come from, or exactly how significant a swipe it makes at long-term deficit reduction.

But one chunk -- $400 billion in savings -- would result from the president's call for a five-year freeze on non-security discretionary spending.

Non-security discretionary spending only makes up about 10% of all federal spending. Deficit hawks lament that both the White House and Republicans have focused all of their attention in this area rather than address the country's big debt drivers -- spending on the entitlement programs and defense.

Nevertheless, this piece of the president's budget is certain to generate some of the biggest outcry since it includes cuts to programs that Democrats fiercely defend, such as heating assistance to low-income people.

Lew said it was a "very difficult" budget. "We have to make tough trade-offs."

Even where the president will propose investments in areas he deems important, such as education, there would also be cutbacks, Lew said.

For instance, Obama's budget will boost the Pell Grant program to ensure that 9 million students will be able to afford college, Lew said. But to pay for those proposals, Obama will call for eliminating the grants for summer school and limit their use to the regular school year.

He will also propose that interest on federal loans for graduate students accrue during school; currently, the interest tab doesn't start running until after graduation.

The changes would save $9 billion in the first year, Lew told CNN's Candy Crowley.

Lew defended the administration from turning its back on its own fiscal commission, which in December proposed $4 trillion in cuts. He listed three items that will appear in the budget that echo recommendations from the commission: a call for corporate tax reform, changes to rein in malpractice lawsuits against doctors and a freeze in pay on federal workers.

Nevertheless, such proposals will not save a significant amount of money relative to the deficits set to accrue. And from all indications, the president's budget will not address key elements needed to control long-term spending in the major entitlement programs: Medicare, Medicaid and Social Security.

Obama's budget request is essentially a blueprint of his fiscal policy priorities -- the programs he would like to fund or cut, the new investments he would make and how he would pay for it all.

Congress can accept, reject or modify the president's budget. And Republicans may well reject much of it out of hand, since its cuts are not nearly as deep as many conservatives have been demanding.

Obama's proposal is only the first step in a convoluted process that involves no less than 40 congressional committees, 24 subcommittees, countless hearings and a number of floor votes in the House and Senate.

If all goes well, a formal federal budget for government agencies will be in place by Oct. 1, the start of the 2012 fiscal year. Because Congress never passed a budget for fiscal year 2011, the government has been running on funding from a so-called continuing resolution, which expires on March 4. To top of page

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