Obama unveils $1.1 trillion budget cuts

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

Conservatives say Obama is a tax-and-spend liberal, and they aim to make the 2012 presidential election a referendum on his fiscal track record.

Details of the budget proposal provided by the White House before its official release showed the deficit rising to $1.645tn in fiscal 2011, then falling sharply to $1.101tn in 2012.

This trend would trim the deficit as a share of the US economy to 3.2% by 2015 from 10.9% this year.

“It’s a start, it’s a move in the right direction,” said Philip Poole, global head of macro investment strategy at HSBC Global Asset Management in London.

“It’s a lot less than the Republicans wanted to see. It’s not clear that this can actually be enacted,” he said.

Obama’s budget for fiscal 2012 is a proposal to Congress laying out the president’s policy priorities. Months of wrangling with the Republican opposition in Congress will now follow.

“Even though we might have some differences at the outset, we’re very eager to work with Republicans to cut spending, reduce our deficit,” a senior Obama administration official told reporters.

The official cited a December tax pact forged between Obama and Republicans as evidence the two sides can work together, but the initial reaction from the other party was sceptical.

“The president talks like someone who recognises that spending is out of control, but so far it hasn’t been matched with action,” Senate Republican leader Mitch McConnell said. “Americans don’t want a spending freeze at unsustainable levels. They want cuts, dramatic cuts.”

Two-thirds of Obama’s deficit savings come from spending cuts and expected reductions in interest payments as the deficit declines.

The rest comes from higher revenue, in part as provisions in a December pact on payroll taxes and jobless aid expire, and also as stronger growth lifts tax revenue.