Obama unveils budget that reflects tough times

President Barack Obama yesterday unveiled a budget projecting a record deficit this year, with billions of dollars to curb unemployment and tax hikes on the rich to tame big fiscal shortfalls.

"It's a budget that reflects the serious challenges facing the country," Mr Obama said at the White House after sending the mammoth spending plan to Congress.

"We're at war, our economy has lost seven million jobs the last two years and our government is deeply in debt after what can only be described as a decade of profligacy."

The 3.834 trillion dollar budget includes a freeze on non-security discretionary spending, a 100 billion dollar jobs package and more money for overseas wars, education and homeland security.

It makes a grim forecast that unemployment, currently at 10 percent, will average 9.2 per cent in 2011, and 8.2 per cent in 2012, the year when Obama faces a re-election campaign, carrying a punishing legacy of the worst financial crisis since the Great Depression.

The economic forecast, however, predicts solid GDP growth of 2.7 per cent in 2010 and 3.8 per cent in 2011.

The budget, for fiscal year 2011, foresees a record deficit of $1.556 trillion in 2010, falling to £1.267 trillion in 2011, and abandons a bid to send men back to the moon, by ending the Constellation programme.

The Obama Administration said the 2011 budget is aimed at dealing with the aftermath of the financial, fiscal, housing and unemployment crises, and to put the United States on a path to long-term economic security.

The budget will also set the battle lines for the political debate in the run-up to mid-term congressional elections in November, in which Obama's Democrats, paying the price for high unemployment, fear heavy losses.

The Administration says that the deficit will stand at $1.267 trillion in 2011, which will represent 8.3 per cent of Gross Domestic Product, compared to 10.6 per cent of GDP in 2010.

Republicans and some conservative Democrats have raised the alarm at high government spending, which has swelled the deficit, and the issue has been a source of considerable political pressure for Mr Obama.

But some analysts warn it is too early to focus on cutting deficits and fear the tactic risks slowing the spending needed to stimulate the economy and generate jobs.

Mr Obama's budget chief Peter Orszag told reporters that the administration thought it had the balance right, between spurring recovery and making a start of trimming deficits which pose a grave long-term economic threat.

"Federal spending is a little like an aircraft carrier, you have to start turning the ship well ahead of time," he said.

The 2011 budget contains more than $300 billion in tax cuts for families and businesses over the next 10 years and terminates 120 programs for savings of 20 billion dollars.

It will, however, allow tax cuts introduced by former President George W. Bush to expire for people earning more than $250,000 a year.