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Obama's proposed budget for fiscal 2012 focuses on education, energy, research

By Lori Montgomery
Washington Post Staff Writer
Tuesday, February 15, 2011; 12:36 AM

President Obama submitted a budget blueprint for fiscal 2012 on Monday full of surgical cuts and cautious trade-offs to lawmakers clamoring for bold action to reduce government spending and control a budget deficit expected to rise to a record $1.6 trillion this year.

The $3.7 trillion plan proposes to trim or terminate more than 200 federal programs, striking areas long favored by Democrats to make room for increases aimed at boosting the economy. The new priorities include spending on education, energy and medical research, and a push to bring high-speed Internet to virtually every American.

At a time when Republicans are demanding sharp and immediate spending cuts, however, the president's offer to freeze funding for domestic programs would produce minimal savings in the short term. The improving economy would help next year's deficit recede to $1.1 trillion, the fourth straight year of trillion-dollar budget gaps, but Obama's policies would do nothing to further reduce next year's deficit.

Meanwhile, Obama would rely heavily on new taxes to improve the government's finances in the longer term. His budget calls for $1.6 trillion in fresh revenue over the next decade, primarily through higher levies on businesses and the wealthy.

The budget request - the president's first since Republicans won control of the House in November - marks his opening bid in a partisan battle over spending that is likely to consume Congress for the rest of this year and shape the political debate heading into the 2012 presidential election. Fueled by tea party fervor, some Republicans say they are willing to shut down the government to force fiscal restraint, while Democrats are courting independent voters with a more judicious approach.

At a news conference at a Baltimore County middle school dedicated to math and engineering, Obama cast his go-slow approach to budget-cutting as a responsible alternative to the steep reductions Republicans are seeking in a vote this week on the House floor.

"While it's absolutely essential to live within our means, while we are absolutely committed to working with Democrats and Republicans to find further savings and to look at the whole range of budget issues, we can't sacrifice our future in the process," the president said. "I know the American people understand why this is so important."

Republicans blasted the proposed budget as a bait-and-switch, saying it would not deliver on the administration's pledge to reduce deficits primarily by cutting spending. They also said Obama ignored a plan developed by his own fiscal commission to tackle the biggest drivers of future deficits: popular safety-net programs for the elderly and a tax code that offers more in deductions than it collects in revenue.

"This budget was an opportunity for the president to lead. He punted. It only pretends to do the things people want," Senate Minority Leader Mitch McConnell (R-Ky.) said in a speech on the Senate floor. "This is business as usual at a time when bold, creative solutions are needed. This is not an I-got-the-message budget."

House Budget Chairman Paul Ryan (R-Wis.) said he found Obama's budget request "more than disappointing. I expected more taxes," he said, "but I also expected some serious spending controls or reforms, and we're getting none of it."

Some Democrats were equally outraged, complaining that the request would cut cherished programs for the poor too deeply. The blueprint would reduce a popular heating-assistance program for low-income Americans by 50 percent, trim $300 million from community development block grants and scale back an expansion of the Pell grant program for low-income college students that has proved more costly than expected.

"How can we stop the Republican cuts when the President has one-upped them?" Rep. Jesse L. Jackson Jr. (D-Ill.) said in a statement.

Senior Democrats defended the document as a savvy move in a developing chess game with Republicans. Polls show rising concern about deficits but little appetite among voters for cutting specific programs. Democrats say the president's blueprint effectively counters GOP calls for lower spending, while offering a more deliberate approach that more Americans would favor. Meanwhile, it would leave the door open to bipartisan negotiations over the long-term budget problems that are taking shape in the Senate.

"The president's budget shows a willingness to cut spending on programs he cares about. It also demonstrates there is only so much that can be achieved in a one-year budget when the problem is a significant, long-term structural imbalance in our country's budget," said Sen. Mark R. Warner (D-Va.), a key player in the talks.

On Monday, Obama stressed the "hard choices" in his budget request, saying it represents a pivot toward fiscal responsibility after two years of increased spending to stabilize the recession-ravaged economy.

Jacob J. Lew, the director of the Office of Management and Budget, said the proposal would reduce deficits by $1.1 trillion over the next decade, with two-thirds of the savings coming from spending cuts, but senior GOP budget aides rejected that analysis as gimmickry. They noted that the primary source of savings - a five-year freeze on domestic spending - would save only $400 billion over the next decade. The Pentagon also would take a $78 billion hit over the next five years, war costs would plummet and Obama would squeeze some additional cash out of entitlement programs such as Medicare.

But higher tax revenue also appears to account for a large share of savings. Households with incomes of more than $250,000 a year would immediately see new limits on the value of their itemized deductions. And starting in 2013, they would lose the lower tax rates and other breaks that were enacted during the George W. Bush administration and recently extended.

The president also proposes to hit businesses with an array of proposals that he has offered in the past, including an end to subsidies for oil and gas companies, new taxes on hedge fund managers and a $30 billion fee on financial institutions aimed at repaying taxpayers for the federal Troubled Assets Relief Program bailout.

Although Obama wants to overhaul the corporate tax code to lower the 35 percent rate on profits, his budget does not make that costly adjustment. Instead, it would offer previous proposals to wipe out tax breaks for corporations that do business overseas.

Obama also directs Congress to develop a plan to pay for a new multi-year transportation bill, a program traditionally financed through federal taxes on gasoline.

Those policies would do little to improve the immediate budget outlook. The president projects that the deficit will hit a record $1.6 trillion this year - which, at nearly 11 percent of the economy, would be the largest since World War II. The bigger wave of red ink is caused in part by the recent bipartisan tax deal, which reduced payroll taxes this year for virtually every working American.

The annual deficit is projected to fall to $1.1 trillion next year, and to decline rapidly thereafter as the economy improves, stabilizing at about 3 percent of the economy for much of the decade. Borrowing, too, would level off, leaving the accumulated national debt at about 76 percent of gross domestic product, nearly double the debt burden the nation carried before the recession.

All told, Obama estimates that the nation would have to borrow an additional $7.2 trillion through 2021 under his policies, an improvement over previous projections that topped $9 trillion.

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