Business

Barack Obama unveils US budget plans for 2012

  • 14 February 2011
  • From the section Business

US President Barack Obama has unveiled his 2012 budget, describing the proposal as a "down payment" on future cuts to the US budget deficit.

The budget aims to cut $1.1tn (£690bn) from the US deficit over a decade.

He said the US must live within its means and called for some reductions, but said "we can't sacrifice our future" with drastic cuts.

Republicans, who control the House of Representatives, do not think the cuts go far enough in tackling the deficit.

"Presidents are elected to lead and address big challenges," Republican House budget committee chairman Paul Ryan of Wisconsin told reporters.

"The big challenge facing our economy today and our country tomorrow is the debt crisis. He's making it worse, not better."

Although Mr Obama is empowered to propose a budget, it is up to the US Congress to pass it into law and then to distribute the funds.

Mr Obama's proposed budget is seen as an opening bid in a long process of negotiation with House and Senate leaders of both parties, and Republicans will press for deeper cuts.

"The president talks like someone who recognizes that spending is out of control, but so far it hasn't been matched with action," US Senate Republican leader Mitch McConnell said in a statement.

"Americans don't want a spending freeze at unsustainable levels. They want cuts, dramatic cuts. And I hope the president will work with us on achieving them soon."

Mr Obama's budget proposal envisages total spending of $3.73tn in the 2012 budget year, which begins in October. That is a 2.4% reduction from the current year.

The proposal also largely ignores what analysts say are the country's most crushing budget burdens: the Social Security retirement programme and the Medicare and Medicaid healthcare programmes for the elderly and poor.

Biggest impact

At a school in the state of Maryland on Monday, Mr Obama called for future investment in education, transport infrastructure and high speed internet, "so that every American is equipped to compete with any worker anywhere in the world".

But he acknowledged that with the US government budget deficit expected to top $12tn through the next decade, some cuts and tax increases were needed.

"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," he said.

"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."

The budget calls for a five-year overall freeze in domestic non-defence spending, reducing that spending as a share of the economy to the lowest level since the 1950s, Mr Obama said.

That would amount to about $400bn in reduced spending over the next decade. Republicans, meanwhile, have called for $61bn in cuts to the remainder of the current fiscal year.

Among the programmes slated for cuts under his own plans are some that Mr Obama said he considered crucial, including development grants for poor neighbourhoods.

Mr Obama also reiterated his call for $78bn in cuts to the defence budget over five years.

"If we're going to walk the walk when it comes to fiscal discipline, these kinds of cuts will be necessary," he said.

He said he aimed to wring greater efficiency from government programmes and to sell 14,000 government office buildings and properties.

Chris Van Hollen, the most senior Democrat on the House budget committee, described the proposal as a "tough love budget", but one that would not do "violence" to national investments.

The plan includes:

  • A roughly 50% cut in heating bill assistance to poor families, saving $2.5bn
  • A 25% cut to programmes for environmental conservation of the Great Lakes, saving $125m
  • Raising $46bn over 10 years through elimination of tax breaks to oil, gas and coal companies
  • A 58% increase in transportation spending, to $128.6bn

Analysts have questioned whether Mr Obama's proposal to cut $1.1tn will be enough.

However, whereas countries such as the UK have imposed spending cuts to reduce their deficits, the Obama administration has said rapid, drastic spending cuts are not the way forward.

The US is one of only two G20 countries which expects its deficit to rise, not fall, this year. The deficit is predicted to increase to $1.645tn in the 2011 financial year, then drop to $1.1tn in 2012.

If this was achieved it would cut the deficit as a share of the US economy to 3.2% by 2015 from 10.9% this year.

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