United States President Barack Obama unveiled a $3,73-trillion spending plan for 2012 on Monday, proposing a raft of spending cuts and tax hikes aimed at curbing a record budget deficit.
Facing a projected shortfall of $1,65-trillion this year, Obama’s proposal bets that stronger growth and lower unemployment — coupled with modest short-term spending cuts — will help slash the deficit by a third in one year.
Amid widespread public anger that the government is spending far more than it should, the administration plans to cut $90-billion in spending in 2012 and one trillion dollars over the next 10 years.
Obama said the election-year budget would help meet his promise to halve the deficit by the end of his first term in January 2013.
“The budget I’m proposing today [Monday] meets that pledge and puts us on a path to pay for what we spend by the middle of the decade,” Obama said at a school in Baltimore, Maryland.
The inability of the US to get its budget under control has sparked fears of a debt crisis and a possible default that would plunge the globe into crisis.
Obama said his budget begins to tackle that problem head on.
“As a start, I called for a freeze on annual domestic spending over the next five years,” he said, pointing to a package that saves about $400-billion over the next decade.
Cost-cutting rhetoric
But despite the cost-cutting rhetoric, many of the short-term deficit gains would come from revenue increases, including higher taxes.
Tax cuts for the highest earners would be allowed to expire, while those in the highest bracket would also face a 30% drop in allowable tax deductions.
Oil, gas and coal companies would lose 12 tax breaks, raising $46-billion for the government in the next decade.
The administration forecasts that next year receipts will increase by more than 20%, or $453-billion, compared with this year, cutting the deficit from a whopping 10,9% of GDP this fiscal year to 7% in 2012.
But the plan is dependent on the economy performing much better than outside experts expect.
The budget predicts the US economy will grow 3,6% next year — providing a massive boon in tax revenue — with unemployment sinking to 8,6%.
Those figures are well above the 2,7% growth predicted by the International Monetary Fund for 2012, and unemployment today stands at 9%.
Critics said the plan also failed to address much-needed cuts in the most expensive government programmes — notably defence and social benefits spending.
“President Obama’s budget doubles down on the bad habits of the past four years by calling for more taxes, spending and borrowing of money that we simply do not have,” said House Republican leader Eric Cantor.
Cantor said the budget failed to heed the warnings from a recent bipartisan deficit commission, which called for steep cuts to Social Security, Medicare and Medicaid programmes, which account for about half of the budget.
“Unfortunately, the president again failed to put action behind his words by neglecting to even acknowledge these tough issues,” he said.
At 2 448 pages and a weight of 4,5kg, the budget contains something for most members of Congress — who have to approve it — but plenty more that will be loathed.
Long process
Republicans have long argued that drastic spending cuts will help boost growth, while the Obama administration argues cuts should be carefully measured for fear of derailing the recovery.
Bringing the two sides together is likely to be a long process that takes up most of the year before the required congressional approval of the budget.
As ever the budget’s multiple winners and losers will also lobby to keep benefits and neutralise losses.
In an effort to cut costs without choking competitiveness, the plan shifts billions in spending toward the high-tech and green energy sectors and toward help for those out of work.
Energy subsidies for the poor would be slashed and public workers’ pay frozen, while a range of programmes from community service funding to housing assistance and infrastructure development would lose hundreds of millions of dollars.
States would be given more flexibility to pay for unemployment benefits, while $18-billion would be available to improve high-speed internet access, and $8 billion for high-speed railways in the fiscal year starting October 1. — AFP