The Obama company : 2011 Financial forecast

President Obama spoke about the budget and education at Parkville Middle School and Center of Technology in Baltimore on Monday. At left is Secretary of Education Arne Duncan and right is Office of Management and Budget Director Jack Lew

Obama Budget Pivots From Stimulus to Deficit Cuts By JACKIE CALMES Published: February 14, 2011

WASHINGTON — President Obama, pivoting at midterm from costly economic stimulus measures to deficit reduction, released his budget proposal for fiscal year 2012 on Monday.  The budget projects an annual deficit of more than $1 trillion before government shortfalls decline to sustainable levels for the rest of the decade, and says that that is merely “a down payment” on what needs to be done to for the nation’s long-term fiscal health.
Annual deficits through fiscal year 2021 will add a combined $7.2 trillion to the federal debt, Mr. Obama’s budget indicates — after allowing for $1.1 trillion in deficit-reducing cuts in spending and increases in taxes over 10 years that the president proposes. After 2021, an aging population and rising medical costs will once again drive deficits to unsustainable heights unless there are further changes in spending and taxes, he acknowledges.
While the federal budget would total $3.7 trillion for 2012, much of that spending is accounted for by fast-growing programs — Medicare, Medicaid and Social Security — that are essentially on autopilot unless Mr. Obama and Congress change them, as both parties say they must. It also includes a big item that cannot be cut without reining in the overall deficit: interest on the mounting federal debt.According to G. William Hoagland, the former longtime Republican staff director for the Senate Budget Committee, net interest payments to America’s creditors here and abroad are the fastest-rising piece of Mr. Obama’s budget, growing 16 percent over the next decade.
Overall, Mr. Obama’s budget reflects his cut-and-invest agenda: He proposes to slash spending in some domestic programs, both to reduce deficits and to make room for increased spending on education, infrastructure, clean energy, innovation and research to promote long-term economic growth and global competitiveness.
To illustrate that point, Mr. Obama outlined his budget priorities on Monday at a middle school and technology center in Baltimore, where he visited an advanced eighth-grade science class.
“While it’s absolutely essential to live within our means, while we are absolutely committed to working with Democrats and Republicans to find further savings and to look at the whole range of budget issues, we can’t sacrifice our future in the process,” Mr. Obama said there. “Even as we cut out things that we can afford to do without, we have a responsibility to invest in those areas that will have the biggest impact in our future — and that’s especially true when it comes to education.”
Among the losers are some “things that I care deeply about,” Mr. Obama added, including programs that he had expanded in the past: Home-heating aid to poor families and community-service block grants would be cut in half, and a multistate Great Lakes cleanup project would lose one-quarter of its money, compared with 2010.
Pell grants for needy college students would be eliminated for summer classes, and federal loans to graduate students would start accruing interest immediately, rather than when the students graduate, though they would not have to begin paying them off until graduation. Those changes are intended to help save $100 billion over 10 years to offset the costs of maintaining Pell grants for 9 million students, according to administration officials.
Officials contrast the administration’s budgetary approach with that of House Republicans, who are voting this week to slash the current fiscal year’s spending by much larger amounts, sparing few programs from cuts and increasing spending on none.
“The debate in Washington is not whether to cut or to spend,” said a senior administration official on Sunday, speaking on condition of anonymity to brief reporters on the budget in advance of Mr. Obama’s announcement on Monday. “We both agree we should cut. The question is how we cut and what we cut.”
For the administration’s part, the official said, “it requires cutting programs that in a different environment we would not want to cut.”
For the current fiscal year, which ends Sept. 30, the Obama budget projects a deficit of more than $1.6 trillion, the equivalent of nearly 11 percent of the gross domestic product; in those terms it would be the largest shortfall since World War II ended. That projection has swelled recently, mostly because of the big tax-cut deal that Mr. Obama and Congressional Republican leaders reached in December in hopes of spurring the still-fragile economic recovery. It included a payroll tax cut this year for all Americans.
The deficit for the next fiscal year, 2012, is expected to be smaller by more than $500 billion, largely because of the expiration of those tax cuts and the two-year stimulus package that Mr. Obama signed into law soon after taking office. Economic growth and deficit-reduction measures account for a smaller share of the expected improvement. 

Obama Budget Reflects a Cut-and-Invest Agenda

If the projections are correct, 2012 will be the fourth and final year with a deficit over $1 trillion. When Mr. Obama took office in January 2009, the deficit for that year was projected to be — and ultimately was — $1.3 trillion. A similarly large shortfall followed for 2010. The president’s budget charts a decline from the trillion-dollar level after 2012 to a low of $607 billion in fiscal year 2015, before the annual deficits start inching up again in dollar terms.

Compared with the size of the economy, the guage that economists prefer, the annual deficits would decline from a projected 10.9 percent of gross domestic product this year to 7 percent in 2012. By 2015, Mr. Obama projects, the deficit would be just above his target of 3 percent — the level that many economists consider sustainable, because it means deficits are not growing any faster than a healthy economy.
Of the $1.1 trillion in net deficit reduction that Mr. Obama claims over the next decade with his budget proposal, two-thirds would be from cuts in spending and one-third from added revenue.
Most of the reductions derive from Mr. Obama’s proposed five-year freeze of the same narrow category of spending, known as non-security discretionary spending, that Republicans are proposing to cut. His freeze would save an estimated $400 billion through 2021.

Mr. Obama also would reduce the Pentagon’s five-year spending plans by $78 billion, reflecting savings recommended by his Defense secretary, Robert Gates. Separately, war costs are declining, administration officials said, as troops are withdrawn from Iraq.

Neither Mr. Obama nor Republicans are tackling the large entitlement programs — Medicare, Medicaid and, to a lesser extent, Social Security — whose growing costs are driving projections of unsustainable long-term debt. But Mr. Obama does propose to save $62 billion from Medicare and Medicaid by squeezing care-providers’ reimbursements and expanding federal health programs’ use of generic drugs.
But those savings, by the administration’s accounting, would offset for two years the costs of preventing a scheduled big reduction in payments to physicians who treat Medicare patients. Typically, Congress simply blocks the mandated pay cuts for doctors each year and adds the expense to the deficit.
Similarly, Mr. Obama proposes to stop another favorite Washington budget gimmick: Adding to the deficit the recurring costs of preventing the alternative minimum tax, which is intended for affluent taxpayers, from hitting middle-class households. He would offset the roughly $300 billion revenue loss from fixing the tax for three years, raising a like amount over 10 years by limiting deductions for upper-income people in the top two tax brackets.
That tax increase for affluent Americans would account for the bulk of the revenues that Mr. Obama counts in his $1.1 trillion of net deficit reduction. The rest includes $46 billion over 10 years from eliminating a dozen tax breaks for oil, gas and coal companies to offset the costs of clean-energy initiatives.