Obama Budget Proposal Would Push Deficit to $1.75T

WASHINGTON (By William Branigin and Lori Montgomery, Washington Post) February 26, 2009 — President Obama today unveiled a proposed $3.55 trillion budget for the coming fiscal year he said discards "dishonest" accounting practices of the past and makes "a historic commitment to comprehensive health care reform."

The plan would raise taxes on the wealthiest Americans and trim Medicare to help pay for what the administration calls a $634 billion "down payment" on a universal health care program.

In addition to the budget for fiscal 2010, the administration also proposes a $3.94 trillion budget for the 2009 fiscal year that ends Sept. 30. The figure includes an additional $250 billion that could be used to bail out struggling banks, as well as $410 billion the House approved this week to fund major government agencies through the remainder of the fiscal year. Congress has not yet passed a 2009 budget, but has funded the operations of the government with continuing resolutions through March 6 and spending bill are currently being considered.

Obama's spending plans would push the 2009 budget deficit to a massive $1.75 trillion, officials said this morning. The government's yearly shortfall would equal 12.3 percent of the nation's annual economic output. Such a percentage has not been seen since the end of World War II, when the deficit came to 21.5 percent of GDP.

The new budget includes nearly $534 billion for the Defense Department in 2010, up 4 percent from 2009. The administration is requesting $75.5 billion for the rest of 2009 to pay for the wars in Iraq and Afghanistan, and $130 billion for 2010.

Under the 2010 budget, the Army and Marine Corps increase in size, and military personnel get a 2.9 percent pay increase. Federal civilian employees receive increases of up to 2 percent.

"In keeping with my commitment to make our government more open and transparent, this budget is an honest accounting of where we are and where we intend to go," Obama said at the Eisenhower Executive Office Building next to the White House before the budget was officially released. He said previous budgets have "not told the whole truth" about spending and "large sums have been left off the books," including war costs that have been funded by separate emergency supplemental appropriations.

"And that kind of dishonest accounting is not how you run your family budgets at home; it's not how your government should run its budgets either," Obama said.

He pledged to "go through our books . . . to eliminate waste and inefficiency" in the full budget that will come out this spring. But he said his administration already has identified "$2 trillion in deficit reductions that will help us cut our deficit in half by the end of my first term." Obama yesterday described the sum as "savings," but administration officials said about half the money comes in the form of tax increases, leading to today's change in terminology. A large chunk of the rest comes from measuring Obama's plans against an unrealistic scenario in which the Iraq war costs $170 billion a year indefinitely.

To support an effort to break U.S. dependence on oil "controlled by foreign dictators," Obama said today, "we'll invest $15 billion a year for 10 years to develop technologies like wind power and solar power and to build more efficient cars and trucks right here in America."

He said his plan also builds on efforts to control "crushing health care costs" that he described as dragging down the economy, bankrupting families and making up the fastest-growing part of the budget.

"With this budget, we are making a historic commitment to comprehensive health care reform," Obama said.

White House officials said the $250 billion being added to the budget to shore up banks is considered a "placeholder," which the administration hopes not to have to spend — at least not in its entirety. But Obama made clear in his nationally televised address to a joint session of Congress Tuesday night at least some additional funds will be necessary.

Aides say the government money could be leveraged to purchase an additional $750 billion in troubled assets from struggling financial institutions, essentially doubling the government's Troubled Assets Relief Program. The government has already allocated $700 billion for bank relief. Because the government-purchased assets are eventually to be sold, however, the cost being included in the budget — and the amount that would ultimately be added to this year's deficit — remains at $250 billion.

Administration officials, including Obama, have acknowledged that bank relief is not popular, but the president made clear he sees it as necessary to buttress the economy. In his speech Tuesday, Obama tried to reassure the public he understands taxpayers' anger over bank mismanagement and the need to pour billions of dollars of federal assistance into them.

"I promise you — I get it," he said. But he also said, "My job — our job — is to solve the problem."

The budget proposal, which must be approved by Congress, depends on the assumption lawmakers can resolve some hugely contentious issues. And it relies on a few well-worn budget tricks.

The request Obama delivers to Congress today proposes to provide what administration officials are calling a down payment on a major expansion of health care coverage for the uninsured. It identifies $634 billion in tax increases and spending cuts to cover the cost of part of the program, but does not say how the administration hopes to raise the rest of the money — hundreds of billions of dollars more. "TBD," meaning "to be determined," has been penciled into categories for cost savings and benefit reductions.

Obama's budget also would make permanent a tax cut for the middle class enacted in the recent stimulus package. But to pay for it, the president counts on a big infusion of cash from a politically controversial cap-and-trade system, which would force companies to buy allowances to exceed pollution limits. Even if that plan is approved, some lawmakers have other ideas about how to spend the money.

In a presidential message preceding a summary of the budget, Obama laid out elements of the current economic crisis that he said warrant massive government spending this year and next. In addition to the loss of more than 3.5 million jobs in the past 13 months, he said, another 8.8 million Americans are underemployed, manufacturing employment has hit a 60-year low, capital markets are "virtually frozen," and "trillions of dollars of wealth have been wiped out" in the stock markets.

"This crisis is neither the result of a normal turn of the business cycle nor an accident of history," Obama said. "We arrived at this point as a result of an era of profound irresponsibility that engulfed both private and public institutions from some of our largest companies' executive suites to the seats of power in Washington, D.C. . . . This irresponsibility precipitated the interlocking housing and financial crises that triggered this recession."

Saying government has repeatedly failed to confront systemic problems as policymakers have chosen "temporary fixes," Obama declared: "The time has come to usher in . . . a new era of responsibility. . . . This budget is a first step in that journey."