Obama's budget plan sets the stage for a bitter fight with Republicans who vow even tougher spending controls [AFP]

Barack Obama has proposed a budget that would cut the US deficit by $1.1 trillion over
10 years, setting the stage for a tough fight with Republicans who vow even tougher spending controls.

Obama sent congress a $3.73tn spending plan on Monday that holds out the prospect of eventually bringing deficits under control through spending cuts and tax increases.

However, the fiscal blueprint largely ignores his own deficit commission's plea to lower huge entitlement programmes like Social Security and Medicare.

Obama called his new budget one of "tough choices and sacrifices", but most of those cuts would be held off until after the end of his first term.

Overall, Obama proposed reducing the deficits by $1.1tn over a decade although his changes would actually add to the deficits this year and next.

Key points

  Obama budget aimed at cutting deficit by $1.1 trillion
over 10 years
  Deficit to rise to $1.645 trillion in fiscal 2011, then fall to $1.101 trillion in 2012
  Republicans aim to make 2012 presidential election a
referendum on Democrat Obama's fiscal track record

He is projecting the deficit will hit an all-time high of $1.65tn this year and then drop sharply to $1.1tn in 2012, with an expected improvement in the economy and as reductions in Social Security withholding and business taxes expire.

Obama's 2012 budget would actually add $8bn to the projected deficit for that year because the bulk of the savings he will achieve through a freeze in many domestic programmes would be devoted to increased spending in areas Obama considers priorities, such as education, clean energy and high-speed rail.

"We have more work to do to live up to our promise by repairing the damage this brutal recession has inflicted on our people," he said.

Republicans, who took control of the House in the November elections and picked up seats in the senate in part because of voter anger over the soaring deficits, called Obama's efforts too timid. 

The legislators are set to begin debating on Tuesday $61bn in cuts for the remaining seven months of fiscal 2011.

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

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

Al Jazeera's John Terrett, reporting from Capitol Hill, said there is "a real war" going on between the Republicans and the Democrats.

"The Republicans would have the Democrats cut far more. President Obama is not really comfortable about going as far as he has done with the cut backs in this budget, lots of Americans are going to be hurting as a result of it," he said.

"But nonetheless, he has to appeal to two groups: one is the Republicans who control the House of Representatives; and the other is floating voters that have a foot firmly in the Republican camp but who voted for him in 2008," he said.

Record deficit

Obama's deficit commission made a host of recommendations including raising the Social Security retirement age and curbing benefit increases, eliminating or sharply reducing popular tax breaks, reforming a financially unsound Medicare programme and almost doubling the federal tax on petrol.

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Investment strategist Ashraf Laidi talks to Al Jazeera about the upcoming bitter US budget battle

Obama included none of these proposals in his new budget. The deficit panel called for savings by making these politically tough choices of $4tn over a decade, four-times the savings that Obama is projecting.

The budget plan, which is certain to be changed by congress, would spend $3.73tn in the 2012 budget year, which begins on October 1, a reduction of 2.4 per cent from what Obama projects will be spent in the current budget year.

Of the $1.1tn in deficit savings that Obama is projecting over the next 10 years, two-thirds would come from spending cuts including $400bn in savings from a five-year freeze on domestic programmes that account for one-tenth of the budget.

The other one-third of deficit savings would come from tax increases such as limiting the tax deductions high income taxpayers, a proposal that Obama put forward last year only to have it rejected by Congress. Obama also proposes raising taxes on energy companies.

The president's projected $1.65tn deficit for the current year would be the highest dollar amount ever, surpassing the $1.41tn deficit hit in 2009. It would also represent 10.8 per cent of the total economy, the highest level since the deficit stood at 21.5 per cent of gross domestic product in 1945, reflecting heavy borrowing to fight World War II.

The president's 2012 budget projects that the deficits will total $7.21tn over the next decade with the imbalances never falling lower below $607bn.

Even then that would exceed the deficit record before Obama took office of $458.6bn in 2008, George Bush's last year in office.

Source: Al Jazeera and agencies