Obama's $3.8 trillion budget heading to Congress

WASHINGTON (AP) - President Barack Obama's proposed budget predicts the national deficit will crest at a record-breaking almost $1.6 trillion in the current fiscal year, then start to recede in 2011 to just below $1.3 trillion.

Still, the administration's new budget to be released Monday says deficits over the next decade will average 4.5 percent of the size of the economy, a level that economists say is dangerously high if not addressed.

A congressional official provided the information, which comes from a White House summary document circulating freely on Capitol Hill and among Washington's lobbyists. The official spoke on condition of anonymity because the spending proposal is not supposed to be made public until tomorrow.

Details of the administration's budget headed for Congress include an additional $100 billion to attack painfully high unemployment. The proposed $3.8 trillion budget would provide billions more to pull the country out of the Great Recession while increasing taxes on the wealthy and imposing a spending freeze on many government programs.

Administration projections show the deficit never dropping below $700 billion, even under assumptions that war costs will drop precipitously to just $50 billion in some years instead of more than three times that this year and next.

White House spokesman Robert Gibbs said the administration believed "somewhere in the $100 billion range" would be the appropriate amount for a new jobs measure made up of a business tax credit to encourage hiring, increased infrastructure spending and money from the government's bailout fund to get banks to increase loans to struggling small businesses.

That price tag would be below a $174 billion bill passed by the House in December but far higher than a measure that could come to the Senate floor this week.

Gibbs said it was important for Democrats and Republicans to put aside their differences to pass a bill that addresses jobs, the country's No. 1 concern. "I think that would be a powerful signal to send to the American people," Gibbs said in an appearance on CNN's "State of the Union."

Job creation was a key theme of the budget President Barack Obama was sending Congress on Monday, a document designed, as was the president's State of the Union address, to reframe his young presidency after a protracted battle over health care damaged his standing in public opinion polls and contributed to a series of Democratic election defeats.

Obama's $3.8 trillion spending plan for the 2011 budget year that begins Oct. 1 attempts to navigate between the opposing goals of pulling the country out of a deep recession and dealing with a budget deficit that soared to an all-time high of $1.42 trillion last year.

The startling budget numbers - deficits would total $8.5 trillion over the decade - are raising worries among voters and the foreign investors who buy much of the country's debt.

On the anti-recession front, congressional sources said Obama's new budget will propose extending the popular Making Work Pay middle-class tax breaks of $400 per individual and $800 per couple through 2011. They were due to expire after this year.

The budget will also propose $250 payments to Social Security recipients to bolster their finances in a year when they are not receiving the normal cost-of-living boost to their benefit checks because of low inflation. Obama will also seek a $25 billion increase in payments to help recession-battered states.

Obama's new budget will set off months of debate in the Democratically controlled Congress, especially in an election year in which Republicans are hoping to use attacks against government overspending to gain seats. Obama has argued that he inherited a deficit of more than $1 trillion and was forced to increase spending to stabilize the financial system and combat the worst recession since the 1930s.

Obama's new budget was expected to repeat many of the themes of his first budget. But in a bow to worries over the soaring deficits, the administration is proposing a three-year freeze on spending for a wide swath of domestic government agencies. Military, veterans, homeland security and big benefit programs such as Social Security and Medicare would not feel the pinch.

The freeze would affect $447 billion in spending and is designed to save $250 billion over a decade. However, it would not fall equally on all domestic agencies. Some would see budget cuts to free up spending for programs the administration wants to expand such as education and civilian research efforts.

NASA's mission to return astronauts to the moon would be grounded with the space agency instead getting an additional $5.9 billion over five years to encourage private companies to build, launch and operate their own spacecraft for the benefit of NASA and others. NASA would pay the private companies to carry U.S. astronauts.

Obama's budget repeats his recommendations for an overhaul of the nation's health care system, the fight that dominated his first year in office. It proposes to get billions of dollars in savings from the Medicare program and again seeks increased taxes on the wealthy by limiting the benefits they receive from various tax deductions. Both ideas have met strong resistance in Congress.

Gibbs insisted Sunday that the president's push for health care was "still inside the 5-yard line," but Senate Republican leader Mitch McConnell, also appearing on CNN, said the public was overwhelmingly against the bill and the administration should "put it on the shelf, go back and start over."

In addition to the freeze on discretionary nonsecurity spending, Obama is proposing to boost revenues by allowing the Bush administration tax cuts of 2001 and 2003 to expire at the end of this year for families making more than $250,000 annually. Tax relief for those less well-off would be extended.

The new Obama budget will also include a proposal to levy a fee on the country's biggest banks to raise an estimated $90 billion to recover losses from the government's $700 billion financial rescue fund. Those losses are expected to come not come from the bank bailouts but from the support extended to General Motors and Chrysler and insurance giant American International Group as well as help provided to homeowners struggling to avoid foreclosures.

Also on the deficit front, the president has endorsed a pay-as-you-go proposal that passed the Senate last week. It would require any new tax cuts or entitlement spending increases to be paid for, and he has promised to create a commission to recommend by year's end ways to trim the deficits. However, a legislatively mandated panel was rejected in a Senate vote last week. Republicans opposed establishing the panel because it might recommend tax increases to close the deficit.