President Barack Obama on Monday proposed halving the deficit by 2013 and cutting $1.1 trillion over the next decade in a budget he called a downpayment on fiscal control.
But Republicans, who accuse Obama of being a tax-and-spend Democrat, said the president had not gone far enough in controlling costs. They aim to make the 2012 presidential election a referendum on his fiscal track record.
Obama said his plan was a balance between deficit reduction pain and investment for growth. But it only provided a general guide on how to tackle entitlement outlays that include the Social Security and Medicare programs responsible for huge government spending.
What we have done here is make a downpayment, but there is going to be more work that needs to be done and it's going to require Democrats and Republicans coming together to make it happen, he said at a school in nearby Maryland.
Obama's $3.729 trillion budget proposal for fiscal 2012 shows the deficit rising to a record $1.645 trillion in fiscal 2011, then falling sharply to $1.101 trillion in 2012.
This trend would trim the deficit as a share of the U.S. economy to 3.2 percent by 2015 from 10.9 percent this year, and meet a pledge Obama made to his Group of 20 partners to halve the deficit by 2013. The news was well-timed, with G20 finance ministers meeting in Paris on Friday and Saturday.
Two thirds of the savings come from spending cuts and the rest through higher revenues as U.S. growth steadily picks up pace and from tax increases, with the president seeking $129 billion over 10 years by cutting big business tax breaks.
Obama's budget for fiscal 2012 is a proposal to Congress laying out the president's policy priorities.
Months of wrangling will now follow with Republicans in Congress, who control the House of Representatives and increased their seats in the Senate after November elections in which they campaigned on deep cuts in federal spending.
What happens now is the Senate and House budget committees will try to craft their own budget blueprints. If they succeed, this yields so-called resolutions providing guidance for other congressional committees to write legislation via a number of separate funding bills that can be voted into law.
Success in not assured. Obama's 2011 budget became mired because Democrats and Republicans could not agree
Congress often goes in a different direction, said Michael Moran, chief economist at Daiwa Securities America in New York. It was mildly encouraging that the President put in place some deficit-cutting moves, but disappointing in that he did not tackle ... entitlements and tax reform, he said.
Instead, Obama merely said he would work with Congress to overhaul the corporate tax code, and laid out broad principles for reforming Social Security that reflect long-held Democratic commitments to defend pensions for the elderly and disabled.
Republicans, who have already unveiled much tougher proposals to rein in rising U.S. debt, were not impressed.
The president's budget will destroy jobs by spending too much, taxing too much, and borrowing too much, said House Speaker John Boehner in a statement. The president's budget isn't winning the future, it's spending the future, he said, in a play on one of the White House's favorite slogans.
U.S. debt will be hit a legal limit of $14.3 trillion by the end of may unless lawmakers act to lift that ceiling. In addition, failure by lawmakers to agree on funding government operations after a March 4 deadline expires could result in the government shutting down.
That would replay a 1995-1996 showdown between a Democratic president and a Republican-led House of Representatives that ultimately backfired on Republicans. The public sided with then-President Bill Clinton, who won re-election.
We want to see what happens with a negotiation with the Republicans, said Greg Anderson, G10 strategist at CitiFX in New York. Are we going to get another situation as last December with Obama spending increases and Republican tax breaks or actually get true signs of greater fiscal responsibility? he said.
GROWTH LIFTS REVENUE
The budget shows the deficit steadying around 3 percent of gross domestic product from 2015 onward, slowing the rate at which the U.S. adds to its debt, although it will still climb to 77 percent of GDP by 2021, up from 72 percent in 2011.
Obama plans to freeze non-security discretionary spending for five years, lowering the deficit by $400 billion over 10 years. That pledge, unveiled in Obama's State of the Union address last month, will save $33 billion in fiscal 2012, which starts on October 1, 2011.
Healthcare savings over 10 years will spare $62 billion to finance a traditional yearly Doc-fix to reimburse physicians to ensure they keep seeing Medicare patients.
Defense spending in the budget will be cut by $78 billion over five years, as previously announced, and will be 5 percent lower in 2012 compared with the level sought in 2011.
It will mean cutting things that I care deeply about, Obama said. If we're going to walk the walk when it comes to fiscal discipline, these kinds of cuts will be necessary.
(Additional reporting by Patricia Zengerle, Caren Bohan, Ross Colvin, Matt Spetalnick, David Morgan, Roberta Rampton, Glenn Sommerville, Melissa Bland and Emily Kaiser, Editing by Sandra Maler)