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Obama Releases $3.73 Trillion Budget


WASHINGTON—President Barack Obama released a $3.73 trillion budget for fiscal-year 2012 Monday where he sought to balance two competing and conflicting agendas: dramatic cuts to federal spending while also investing in programs to improve U.S. competitiveness. He ended up with a product that offers up more than $1 trillion in deficit reductions over a 10-year period—three-quarters coming from spending cuts and the balance from tax increases or the elimination of existing tax breaks.

In fiscal 2012 alone, the administration proposed reducing or closing 200 federal programs at a savings of $33 billion.

"My budget makes investments that can help America win this competition and transform our economy, and it does so fully aware of the very difficult fiscal situation we face," Mr. Obama said in his budget message.

Many of these proposed budget cuts and tax increases have been proposed earlier and met strong opposition in Congress.


Mr. Obama is proposing cuts to programs such as the Low Income Home Energy Assistance Program, which would stand to lose $2.5 billion, while $300 million would be cut from community-development grants. In doing so, Mr. Obama said his budget includes cuts to "many programs whose mission I care deeply about, but meeting our fiscal targets while investing in our future demands no less."

The president called for a five-year non-security discretionary-spending freeze and a two-year freeze of federal government employees' salaries.

But those proposed savings go nowhere near the short-term reductions that House Republicans are pushing for. Friday night, the party's leaders released details of a plan to slash $62 billion in the remaining 7½ months of fiscal 2011, and they promised to cut more in their fiscal 2012 budget plan.

The Obama budget reductions don't come close to the $4 trillion in savings recommended by a White House-appointed deficit commission. This is largely because the president's budget shies away from pushing for any substantial changes to entitlement programs Medicare, Medicaid or Social Security. Nor does it include a specific outline for overhauling either the corporate or individual tax codes.

The budget acknowledged that the proposed cuts to discretionary spending were only a beginning to addressing the core fiscal problems facing the country.

"But non-security, discretionary spending represents approximately 12% of all spending," the budget said. "The solution to our long-term fiscal problems cannot rest on this alone."

On Social Security, Mr. Obama sought to start the conversation by outlining a series of principles for an overhaul effort. He is proposing no reductions in basic benefits for seniors, and future beneficiaries could not see their "benefits slashed."

Republican lawmakers criticized Mr. Obama for failing to spell out how to reduce entitlement spending.

"We're not having any leadership" at all, Sen. Jeff Sessions (R., Ala.), the top Republican on the Senate budget committee said on CNN. "I do believe he deserves serious criticism for that."

Mr. Sessions added his party stood ready to begin negotiations with Mr. Obama on overhauling the entitlement programs.

White House Budget Director Jacob Lew said the budget did in fact attempt to meet the goals set out by the deficit commission.

"We accomplished the goal that the commission was set out to accomplish, which was to get to a sustainable deficit as a percentage of the economy in the middle of the decade," Mr. Lew said on CNBC.

Under the president's budget, the deficit as a share of U.S. gross domestic product would decline from its projected 10.9% in fiscal 2011 to 2.9% by fiscal 2018. Most economists agree that a deficit lower than 3% of GDP is sustainable.

But then under the White House budget, the deficit would begin increasing again as a share of GDP in the latter years of the decade, largely as a result of the costs of the entitlement programs.

Mr. Obama does propose aggressively cutting the Pentagon's budget—which along with the entitlement programs and interest on the national debt account for the lion's share of federal spending.

He would cut defense spending by $78 billion over the next five years, bringing the Pentagon budget down to zero real growth. Combined with reduced expected spending on the wars in Iraq and Afghanistan in the coming years, that would reduce defense spending substantially.

On the investment side, Mr. Obama called again for making the research and development tax credit permanent—at a cost of $106 billion over the next decade.

The president proposed $36 billion in loan authority for the construction of new nuclear-energy power plants as well as $2 billion in loan guarantees for other new renewable-energy projects.

The $7,500 tax credit available toward the purchase of new electric vehicles would be transformed into a rebate available to all consumers upon purchase. The president reiterated his goal of having one million advanced-technology vehicles on the roads by 2015.

The budget would create 100,000 teaching positions in science, math, technology and engineering over the next 10 years.

It would maintain the current maximum of a $5,500 grant available to poorer college students—it would pay for the substantial cost of doing so by eliminating the grant's availability during summer school, and interest would begin accruing on loans taken out by graduate students from their inception.