Obama to spend and squeeze in budget

US President Barack Obama will unveil a $3.8 trillion (€2.7 trillion) budget today that will increase spending in the fight against unemployment, boost taxes on the wealthy and freeze spending for government programmes.

Among the casualties is expected to be NASA’s cherished new project to build a space station on the moon.

The budget deficit for this year would surge to a record-breaking $1.6 trillion (€1.1 trillion), according to a congressional source, easily beating last year’s then-record $1.41 trillion (€1 trillion).

The source said the deficit would remain above a trillion dollars in 2011 and would average 4.5% of the economy over the next decade, a level that economists consider a threat to long-term economic prosperity.

In an effort to address the deficit, the president’s budget would institute a three-year freeze on a variety of programmes outside the military and homeland security as well as increasing taxes on energy producers and families earning more than $250,000 (€180,000).

To support the pledge in his recent State of the Union address to make job creation his top priority, Mr Obama is proposing a budget that includes a $100bn (€72bn) jobs measure that would provide tax breaks to encourage businesses to boost hiring as well as increased government spending on infrastructure and energy projects.

After a long battle on sweeping health care reform the administration is hoping that its new budget will convince Americans the president is focused on fixing the economy.

Even before the budget arrived on Capitol Hill, Republicans complained about Mr Obama’s proposed tax increases and said the huge projected deficits showed he had failed to get government spending under control.

But administration officials argued that he inherited a deficit that was already topping a trillion dollars when he took office, and given the severity of the downturn, the president had to spend billions stabilising the financial system and jump-starting growth.

Much of the spending surge over the past two years reflects the cost of the massive economic stimulus measure that Congress passed in February 2009 to deal with the worst economic downturn since the Great Depression. The surge in the deficits reflects not only the increased spending but also a big drop in tax revenues, reflecting the 7.2 million people who have lost jobs since the recession began.

Mr Obama’s new budget attempts to navigate between the opposing goals of pulling the country out of a deep recession and getting control of runaway budget deficits.

In a bow to worries over the soaring deficits, the administration proposed a three-year freeze on spending beginning in 2011 for a wide swath of domestic government agencies.

NASA’s mission to return astronauts to the moon would be grounded with the space agency instead getting an additional 5.9 billion dollars over five years to encourage private companies to build, launch and operate their own spacecraft for the benefit of NASA and others. NASA would pay the private companies to carry US astronauts.

Mr Obama’s budget repeats his recommendations for an overhaul of the nation’s health care system even though prospects for passage of a final bill have darkened given the stunning loss of a Democratic Senate seat in Massachusetts in a recent special election to replace the late Sen. Edward Kennedy, depriving Mr Obama’s party of a supermajority.