Obama unveils $3.73 trillion budget for 2012

President Barack Obama is sending Congress a $3.73 trillion spending blueprint that pledges $1.1 trillion in deficit savings over the next decade through spending cuts and tax increases.

Obama's new budget projects that the deficit for the current year will surge to an all-time high of $1.65 trillion. That reflects a sizable tax-cut agreement reached with Republicans in December. For 2012, the administration sees the imbalance declining to $1.1 trillion, giving the country a record four straight years of $1 trillion-plus deficits.

Senior administration officials say Obama would achieve two-thirds of his projected savings through spending cuts that include a five-year freeze on many domestic programs. The other one-third of the savings would come from tax increases, including limits on tax deductions for high-income taxpayers.

Even before Obama's new budget for 2012 was unveiled on Monday, Republicans were complaining that it did not go far enough. They branded Obama's budget solutions as far too timid for a country facing an unprecedented flood of red ink that has pushed annual deficits to all-time highs above $1 trillion.

"We're broke," House Speaker John Boehner said Sunday on NBC's "Meet the Press." He was defending a Republican effort not only to squeeze more savings out of Obama's 2012 budget but also to seek $61 billion in cuts for the current budget year.

House Republicans, many of whom were elected on an anti-deficit pledge, forced their own leaders to nearly double the savings they will seek in the seven months left in the 2011 budget year. Congress has been unable to pass a budget for the current year, and the government has been operating on a stopgap spending bill that expires on March 11.

Jacob Lew, the president's budget director, appearing on CNN's "State of the Union," refused to say what size cuts for 2011 would be acceptable to the administration. He stressed a desire to find a compromise that would avoid a government shutdown, something that last occurred during a protracted budget battle between Congress and the Clinton administration.

Obama's new budget will put forward a plan to achieve $1.1 trillion in deficit reductions over the next decade, according to an administration official who spoke on condition of anonymity in advance of the formal release of the budget.

Two-thirds of those savings would come from spending reductions including $400 billion in savings from a five-year freeze on spending in many domestic government agencies.

The other one-third of savings would come from tax increases. The biggest tax hike would come from a proposal to trim the deductions the wealthiest Americans can claim for charitable contributions, mortgage interest and state and local tax payments. The administration proposed this tax hike last year but it never advanced because of widespread congressional opposition.

In addition to cutting deficits, Obama's new budget would increase spending in selected areas such as education, infrastructure spending and research and development — areas where the administration believes spending must be boosted for the country to remain competitive in the global economy.

Republicans have called these proposals nonstarters, saying the government can't afford spending increases and should only be debating how much to cut. They have also challenged Obama's five-year freeze on many domestic programs, saying that the president wants to freeze spending at 2010 levels, after two years of sizable spending gains. They are pushing to take spending back to 2008 levels, before spending ballooned in response to a deep recession.

"Americans don't want a spending freeze at unsustainable levels," said Senate Republican Leader Mitch McConnell. "They want cuts, dramatic cuts."

Boehner said that Obama's budget "will continue to destroy jobs by spending too much, borrowing too much and taxing too much."

Lew rejected criticism that the $1.1 trillion deficit-cutting goal fell far short of the $4 trillion in deficit cuts outlined by the president's own deficit commission in a plan unveiled last December. The commission urged an attack on the biggest causes of the deficits — spending on the benefit programs Medicare, Medicaid and Social Security — and defense spending.

Obama's budget avoided painful choices in those areas although it does call for $78 billion in reductions to Pentagon spending over the next decade by trimming what it views as unnecessary weapons programs such as the C-17 aircraft, the alternative engine for the Joint Strike Fighter aircraft and the Marine expeditionary vehicle.

Administration officials said that the savings from limiting tax deductions for high income taxpayers would be used to pay for keeping the Alternative Minimum Tax from hitting more middle-class families over the next two years.

Another $62 billion in savings would be devoted to preventing cuts in payments to doctors in the Medicare program over the next two years. Congress has for several years blocked the cuts from taking effect, but the effort drove the deficits higher because lawmakers did not find offsetting savings.

While the administration's budget will propose freezing domestic programs that account for about one-tenth of the total budget, some programs in this category will also see sizable declines in spending.

Community development block grants would be trimmed by $300 million, the government's program to help low-income people pay their heating bills would be cut in half for a savings of $2.5 billion and a Great Lakes environmental restoration program would be cut by 25 percent to save $125 million.

The budget will propose $1 billion in cuts in grants for large airports, almost $1 billion in reduced support to states for water treatment plants and other infrastructure programs and savings from consolidating public health programs run by the Center for Disease Control and various U.S. Forest Service programs.

The administration will also propose saving $100 billion over a decade from Pell Grants and other higher education programs through belt-tightening, with the savings used to keep the maximum college financial aid award at $5,550, according to an administration official who spoke on condition of anonymity in advance of the budget's Monday release.

The $1.1 trillion in savings would reduce the deficit as a percentage of the total economy to close to 3 percent of GDP by the middle of this decade. The deficit is projected by the Congressional Budget Office to surge to an all-time high of $1.5 trillion this year, which would be 9.8 percent of the economy and mark the third consecutive $1 trillion-plus budget gap.

The surging deficits reflect the deep 2007-2009 recession, which cut into government tax revenues as millions were thrown out of work and prompted massive government spending to jump-start economic growth and stabilize the banking system.

While Republicans scored significant victories in the November elections by attacking the soaring deficits, the administration has argued that the spending was needed to keep the country from falling into an even deeper economic slump.