Obama struggles to balance budget cuts, spending

Tuesday, 15 February 2011 00:01 -     - {{hitsCtrl.values.hits}}

WASHINGTON, (AFP) - US President Barack Obama unveils his fiscal 2012 budget Monday, an election year plan forged from conflicting needs to cut spending and stoke the economic recovery.With vast crisis payments and sharply lower tax revenues making it difficult for the government to balance its books, Obama will set out an austerity plan that will help set the tone for next year’s presidential race.

It is expected to address widespread public anger that the government is living beyond its means, detailing hundreds of billions of dollars of spending cuts, while making investments that will help “win the future.”White House budget chief Jack Lew said Sunday that the “responsible” proposal aims to slash the massive federal deficit by $1.1 trillion over 10 years and will cut the ballooning deficit in half by the end of Obama’s first term in January 2013.

The proposed budget reductions are more than double the $400 billion of cuts in non-essential programs Obama unveiled in his State of the Union address last month as part of a five-year spending freeze. The president said those savings would take place over 10 years.

“The challenge we have is to live within our means but also invest in the future,” Lew told CNN.

The budget is expected to cut $78 billion from the defense budget over five years, slash energy subsidies for the poor and freeze public workers’ pay.

Lew has outlined a series of other targeted cuts, including $350 million from community service funding and $300 million from Community Development Block grants for housing assistance and infrastructure development.

And graduate student loans would also have to accrue interest while students are completing their studies, though the interest would not have to be paid until the person graduates.

But faced with high unemployment and an economic recovery that is still struggling to escape the orbit of the 2008 economic crisis, Obama will also give states more flexibility to pay for unemployment benefits.

He will also argue for an $18 billion plan to improve high speed Internet access, and $8 billion for high-speed railways in the fiscal year starting October 1.

At 2,448 pages and weighing 10 pounds (4.5 kilograms) the budget will contain something for most members of Congress -- who have to approve it -- but plenty more that will be loathed.

Ahead of its publication, Republicans have been outdoing themselves in the promotion of ever-deeper spending cuts and criticizing Obama for not doing enough.

House Republicans are seeking among other things $74 billion in spending cuts for fiscal 2011, while Democrats are looking for a compromise $32 billion cut.

If neither the budget nor another continuing resolution is passed by March 4, the government would shut down for the first time since 1995.

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.

“It looks like the debt’s going to continue rising under this budget,” House Budget Committee Chairman Paul Ryan told the Fox News Sunday programme.

“Presidents are elected to lead, not to punt. And this president has been punting,” he said.

But experts say cuts in discretionary spending, like those proposed by Obama and the Republicans, are just a drop in the fiscal bucket.

“This spending accounted for just one-fifth of total outlays last fiscal year,” said Augustine Faucher of Moody’s Analytics.

“Even if it had been entirely eliminated -- wiping out the budgets for running the government, education, national parks and the like -- the fiscal 2010 deficit still would have topped $600 billion.” Fears are growing that the inability of the United States to get its budget under control could eventually lead to a debt crisis and a possible default that would plunge the globe into crisis.

This week, Federal Reserve chairman Ben Bernanke warned that dramatic change was inevitable to a “looming or actual fiscal crisis.”

The US budget deficit is currently at the highest levels since World War II, and is projected to hit $1.48 trillion this year, or 9.8 percent of gross domestic product, according to the Congressional Budget Office.