Obama's $1.56 trillion budget to boost jobs
President maintains spending on wars, education and energy
US PRESIDENT Barack Obama forecast a record budget deficit of $1.56 trillion (€1.12tn) for 2010 -- worse even than the White House's prediction made just a week ago -- as red ink threatened to submerge his leadership and reforms such as health care.
Mr Obama's second budget proposals, which now pass to Congress, seek to balance fiscal responsibility with sufficient spending to boost employment. They contain some cuts in government funding but maintain high expenditure on two wars and increases for education, clean energy and research.
The president also introduced tax cuts for small businesses but allowed a cut introduced by George W Bush for those earning more than €180,000 to expire.
"We won't be able to bring down this deficit overnight, given that the recovery is still taking hold and families . . . still need help," said Mr Obama in a TV address. "But the bottom line is this: we simply cannot continue to spend as if deficits don't have consequences."
In his message to Congress included with the budget, Mr Obama called job creation "an urgent priority" with the unemployment rate expected to average 10pc through this year.
"We're trying to accomplish a soft landing in terms of our fiscal trajectory," Peter Orszag, director of the White House Office of Management and Budget, said.
An economic outlook released by the White House predicts that the US economy will grow 2.7pc this year and 3.8pc next year. The unemployment rate will average 10pc in 2010, declining to 9.2pc next year, suggesting that the administration expects employers will be slow to add workers.
The jobless rate won't dip below 6pc until 2015, the forecast showed.
The record deficit projection for 2010 represents 10.6pc of gross domestic product and is €215bn higher than a forecast made by the White House budget office a week ago. It will only boost the argument of the president's opponents that he is an old-style liberal tax-and-spender.
Voters' worries over debt have already contributed heavily to the shock loss of the Massachusetts Senate seat held for decades by the late Edward Kennedy. Democrats fear further losses in November's mid-term elections.
Much of Mr Obama's difficulty can be attributed to stagnant tax revenues and funding for the conflicts in Iraq and Afghanistan. After his decision to send an extra 30,000 troops to Afghanistan, the combined war funding will be close to €115bn for both 2010 and 2011, only slightly less than in the last years of the Bush administration.
Mr Obama's failure so far to pass healthcare and carbon emissions legislation has prevented him from presenting major savings in his forecasts.
The White House has touted its fiscal responsibility by pointing to reductions in 120 government projects, including a Nasa mission to return to the Moon.
But those cuts are expected to save just €180bn over 10 years.
The president spelled out plans to offset spending by more than $1.2tn over 10 years, partly through a freeze on many domestic programmes, by imposing more than $800bn in higher taxes and fees on those earning more than $250,000 and on banks that benefited from the financial industry bailout, and by repealing tax breaks for the oil, gas and coal industries.
The budget reflects "the serious challenges facing the country" and seeks to take the steps needed to turn the country back from "a decade of profligacy," Mr Obama said. (© Daily Telegraph, London)