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Posted by on Feb 1, 2010 in Economy, Politics | 25 comments

Obama’s $3.8 Trillion Proposed Budget Set To Dominate Political World

The watchwords in 2010 — more than ever — will likely be “budget” and “deficit,” in light of the President Barack Obama unveiling a proposed $3.8 trillion budget, coupled with his comments that the fiscal situation remains “unacceptable.”

Get ready for a serious — and, in the scheme of 21st century politics in some cases extremely loud and outraged and not-so-serious — discussion of what government should do and should not do and what government’s role should be in a time of economic crisis when joblessness is a major national problem.

The numbers are staggering but, Obama argues, so are the challenges in the long term that need to be addressed:

President Obama declared in presenting his new 10-year budget proposal on Monday that “our fiscal situation remains unacceptable,” but he insisted that the country pursue his ambitious domestic agenda despite facing swollen budget deficits for the foreseeable future.

“Just as it would be a terrible mistake to borrow against our children’s future to pay our way today, it would be equally wrong to neglect their future by failing to invest in areas that will determine our economic success in this new century,” Mr. Obama said at the White House.

The budget projects that the deficit will peak at nearly $1.6 trillion in the current fiscal year, a post-World War II record, and then decline but remain at economically troublesome levels over the remainder of the decade. In the coming fiscal year 2011, which begins in October, the projected shortfall would be under $1.3 trillion.

Over 10 years, according to the administration, the budget would save an estimated $1.2 trillion, mainly by ending the Bush tax cuts for the richest Americans and freezing some domestic spending for three years. But that total is roughly one-fifth of the size of the debt that will pile up from now to 2020, the budget shows.

In the short run, some relatively minor domestic programs as well as big-ticket military equipment would be cut or eliminated, while education and civilian research would get big increases. Wealthy Americans, big banks and oil and gas companies would pay more in taxes, but the middle class and small businesses would get additional tax cuts worth hundreds of billions of dollars.

The Atlantic’s Nicole Allan offers this list of budget winners and losers.

The Wall Street Journal:

To get the deficit down by the middle of the decade, Mr. Obama will be relying on some cuts that have previously been proposed without success, on cooperation from a wary Congress and on a yet-to-be set up debt commission to suggest politically difficult choices.

At the same time, Mr. Obama is under pressure to address the country’s continued high unemployment rate. And he will propose increases in spending for priorities such as education and domestic scientific research. All of this raises questions about how much progress the president is likely to make in trying to fulfill his pledge to halve by 2013 the $1.3 trillion deficit he inherited.

The budget embodies Mr. Obama’s larger predicament of needing to contain the deficit without harming the economy, which remains fragile. The deficit has become a major political issue, as antigovernment activists swing independents against what they describe as Mr. Obama’s big-government policies and Republicans try to regain the mantle of fiscal responsibility after the Bush years saw surpluses swing to deficits.

Republicans have said they aren’t likely to cooperate with Mr. Obama on his deficit-reduction approach, opposing tax increases even as they attack Democrats for proposing cuts to Medicare. Meanwhile, senior Democrats in Congress have shown themselves reluctant to cut spending with unemployment hovering at 10%.

Under the Obama budget, this year’s $1.6 trillion deficit would fall to $1.3 trillion in the fiscal year that begins Oct. 1. It would drop to $700 billion in 2013 and 2014, the budget projects, on the assumption that the economy recovers, tax receipts start rising again with incomes, and stimulus spending drops off.

The deficit would drop to the equivalent of 5% of GDP in 2013 through expected economic improvement alone. Policy changes proposed by the president, such as a proposed freeze in nonsecurity domestic spending, would shave an additional percentage point.

The LA Times looks at the political aspect:

President Obama’s budget, formally unveiled Monday to set federal spending priorities, also bolsters a goal of his party for the 2010 elections: Show voters that the president is trying to persuade Republicans to share responsibility for governing the country, but that Republicans are turning him away.

The budget plan invites Republicans to join him on a bipartisan commission to cut the deficit — a concept that the GOP has backed in prior years. It includes tax cuts for small businesses long-championed by the GOP. It proposes a domestic spending freeze that infuriates many liberal Democrats.

Those olive branches were offered just days after Obama invited GOP cooperation in his State of the Union address and a televised give-and-take with House Republicans at a policy conference — a remarkable shift in approach after a year of intense partisanship and the bruising loss of the Democratic-held Senate seat in Massachusetts. But those seemingly conciliatory gestures lay the ground work for Obama to thrust his party back onto the political offense: Democrats are gearing up to campaign against the GOP as the root of the budget problem and an obstacle to its solution.

“Congressional Republicans have talked about fiscal responsibility and reducing spending, so I hope they will take this opportunity to work with President Obama on this budget,” said Democratic National Committee Chairman Tim Kaine. “The country will be ill-served by a strategy of opposing the president no matter what he proposes.”

Republicans remain confident that Obama’s budget proposal is their best argument against his party’s dominance in Washington, knowing that it will be difficult for Democrats to pass off responsibility for the record federal debt when voters seem poised to turn against incumbents with a vengeance.

“The fundamentals are clear,” said Senate Republican Leader Mitch McConnell of Kentucky. “This budget is more of the same: more spending, more taxes and more debt.”

Get ready for rhetoric far more fiery than that in coming months as partisans battle the issue out and each side uses its spin in the 2010 mid-term elections.

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