Budget Analysis By Issue: Budget, Deficit and Taxes

President Obama proposes record spending of $3.83 trillion for fiscal 2011, including $1.4 trillion in discretionary spending, $2.2 trillion in mandatory spending on entitlement programs and $251 billion in interest on the national debt. The budget deficit for 2011 is projected at $1.27 trillion. That would follow a record $1.56 trillion deficit for 2010.

The president's proposed budget also contains a number of tax initiatives. President George W. Bush's big tax cuts are scheduled to expire at the end of 2010. President Obama would let the tax cuts expire for couple's making more than $250,000 a year, but he would retain most of the tax cuts for those making less than that.

The president is also offering new tax cuts for job creation by small businesses including a $5,000 credit for each new job created and additional tax breaks for boosting wages. Under another proposal, large banks would be taxed a total of $90 billion over the next 10 years to pay back all of the rescue money lent out by the Troubled Asset Relief Program.

Analysis: That 2010 deficit is equal to nearly 10.6 percent of the nation's total annual output. That's an unsustainable deficit, according to economists. They say the United States might be able to sustain a deficit of 3 percent of total output and remain healthy. Over the next 10 years, the projected deficits don't fall any lower than 3.6 percent.

To address the huge deficits, Obama is proposing a three-year freeze on discretionary spending, with exemptions for the military and national security. Also excluded are big-ticket entitlement spending for programs like Social Security, Medicare and Medicaid. It's estimated the freeze would save $250 billion over 10 years. But that adds up to only about 3 percent of the deficit projected for that period. To get further savings the president plans to appoint a bipartisan commission to develop proposals to eliminate budget deficits by 2015 — not including payments on the massive accumulated debt.



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