Obama forecasts $1,750bn deficit
President Barack Obama on Thursday unveiled the most expansive blueprint for federal government involvement in the US economy in more than a generation in a ten-year budget outline that showed this year’s deficit quadrupling to $1,750bn.
The document, which lays out ambitious plans to create universal health insurance and adopt an economy-wide carbon permit trading system by 2012, was heavily panned by Republicans.
The budget would see George W. Bush’s tax cuts for the wealthiest expire by 2011 and introduce new tax increases on families earning $250,000 or more to pay for healthcare expansion.
In a sign of intense partisan battles to come, Mitch McConnell, the Republican leader in the Senate, where the US president needs supermajorities of at least 60 votes to push bills through, said: “Unfortunately, at this juncture, while the American people are tightening their belts, Washington seems to be taking its belt off.”
The budget also allowed for about $750bn for “financial stabilisation efforts”, on top of the $700bn already granted to Wall Street. The potential aid was shown as a net cost of $250bn because the government would anticipate recouping some of the money. Peter Orszag, White House budget director, said there were “no plans” to seek more aid for banks but the measure indicated it was a strong possibility.
The 134-page document outlines a legacy inherited from Mr Bush of what it calls “mismanagement and missed opportunities and of deep, structural problems ignored for too long”.
By including likely future costs, it moves to a new system of upfront accounting that moves away from the alleged “gimmicks and sleight-of-hand accounting” of the Bush years. Mr Orszag said the Obama administration would “not play the games” that had seen billions of dollars in spending on the wars in Iraq and Afghanistan and other events omitted from prior years’ budgets.
“The first step to getting out of these deficits is honesty,” said Mr Orszag.
Tony Fratto, a former spokesman for Mr Bush, said: “Trying to mask huge spending increases under the cloak of ’fiscal responsibility’ is the height of audacity.”
The budget forecasts a halving of the fiscal deficit that Mr Obama inherited in January, cutting it from 12.3 per cent of GDP this year to 3 per cent in 2013. It projects the US economy will contract by 1.2 per cent in 2009, bottoming out “mid year” before rebounding to 3.2 per cent growth in 2010.
It projects $141bn of spending on the wars in Iraq and Afghanistan this year, falling to $130bn in 2010 as US troops are withdrawn from the former. In subsequent years, there is a $50bn annual estimate for potential war costs, although Mr Orszag said the administration hoped less would be needed.
This article was originally posted on Financial Times