US deficit soars to $1.75 trillion

WASHINGTON: President Barack Obama has unveiled a $3.606 trillion spending plan for next year that will boost taxes on the wealthy and curtail medicare to make way for a $634 billion down payment on universal healthcare.

In addition to sending Congress his budget for 2010, Obama on Thursday proposed a series of changes that will push spending to $3.94 trillion in the current year. That will result in a record deficit Obama projects will hit $1.75 trillion, reflecting the massive spending being undertaken to battle a severe recession.

As part of the effort to end the crisis, the administration proposed boosting the deficit by an additional $250 billion this year, enough to support as much as $750 billion in increased spending under the government���s financial rescue programme. The fiscal 2010 spending plan encompasses Obama���s efforts to pull the country out of its worst economic crisis since the Great Depression of the 1930s.

���The time has come to usher in a new era ��� a new era of responsibility in which we act not only to save and create new jobs, but also to lay a new foundation of growth upon which we can renew the promise of America,��� Obama said in his budget message.���This budget is a first step in that journey.���

The spending would mark a decline from the $3.724 trillion projected for the current fiscal year, which ends September 30. In the current fiscal year, begun under former president George W Bush, the new budget projects a deficit of $1.750 trillion. That amounts to 12.3% of United States��� gross domestic product, the biggest since World War II.

In fiscal year 2010 which starts October 1, the budget forecasts a deficit declining to $1.171 trillion. The projected spending would include some 200 billion dollars to fight wars in Iraq and Afghanistan over the next 18 months, and a huge $634-billion, 10-year fund to pay for healthcare reforms, a key plank of Obama���s election campaign.

Overall, the US president is seeking $663.7 billion in defence spending for fiscal 2010 that includes the costs of wars in Iraq and Afghanistan, an increase of roughly 1.5%. Obama has also asked for $250 billion to be set aside, if needed, to bail out the US financial industry, on top of the $700 billion dollars already committed to the effort.
The Obama administration currently has no plans to use the extra bailout money, but wants the funds included as an ���overly conservative��� place-holder just in case, a senior administration official said.

The budget is due to set the stage for a fierce battle in Congress, with many Republicans angered by plans to raise taxes on the country���s wealthiest, seen as one of the ways of increasing revenues.

Only three Republican senators rallied behind Obama���s $787-billion- stimulus plan to revitalise the ailing US economy.

The budget attempts to fulfil a campaign pledge to raise taxes on Americans earning more than $250,000 a year from 35% to just under 40%, yielding some $2 trillion in 10 years.

Major savings are expected by winding down US military efforts in Iraq, which currently soaks up some $170 billion a year.

Obama���s request includes $75.5 billion for this year to send more US troops to Afghanistan, officials said.
The president also seeks $130 billion for Iraq and Afghanistan for the 2010 budget and set operations in those countries at $50 billion annually in the next several years.

An Obama administration official, speaking on condition of anonymity, said the massive healthcare fund would be financed by raising taxes on highest-earning Americans and by savings from existing healthcare programmes.

The size of the figure was the latest indication of the new president���s intent to push for healthcare reform, a polarising political issue that has bedeviled Democratic presidents for decades. Over 45 million Americans have no healthcare whatsoever.

Another expensive priority is the president���s intention to provide each US child with a ���complete and competitive education,��� and to broaden access to expensive higher learning institutions.

The budget projects an economic contraction of 1.2% in calendar 2009 and growth of 3.2% in 2010.
The plan anticipates an acceleration of growth to 4% in 2011 and 4.6% in 2012.

The assumptions are more optimistic than the projection of the congressional budget office of a 2.2% decline in US GDP in 2009 and a 1.5% growth in 2010.

The Obama budget also expects 2009 average unemployment rate at 8.1%, compared with the CBO projection of 8.3%.
���This budget is an honest accounting of where we are and where we intend to go,��� Obama said at the White House, but he warned: ���There are some hard choices that lie ahead.���