Obama proposes $7,500 electric car tax credit, a $53 Billion Train and cut $1.1 Trillion from Budget?

The administration's 10-year,

$1.1 trillion deficit reduction is less than the

total projected deficit for 2011 alone.

(Meanwhile, back at the White House Ranch, Obama

proposes a $7,500 Electric Car car tax credit and

$53 Billion High Speed Rail Project)

By Jonathan Weisman and
Naftali Bendavid
The Wall Street Journal
2/13/11

WASHINGTON – The White House's budget proposal for 2012 would shave $1.1 trillion from cumulative federal deficits over 10 years, mostly through spending cuts, a move White House officials believe would bring government spending into a healthier balance.

The cuts the administration will propose in its budget proposal Monday would hit a number of federal agencies and programs, but fall short of the spending reductions congressional Republicans will try to push through the House of Representatives this week. They also don't overhaul the major entitlement programs that are the biggest contributors to the nation's long-term fiscal woes.

Washington's focus has pivoted sharply in the last year from concerns over the financial crisis to concerns about the growth of government spending, which has joined jobs and the economy as major issues for voters. The administration's proposal will be the first time it details its vision for the economy and the role of government since Republicans won control of the House of Representatives in November.

White House officials still have not revealed some key details for Monday's budget, including total recommended spending levels and its projected deficit for 2012. The budget is in essence the White House's proposal for fiscal policy to Congress. The House and Senate must approve any changes to tax and spending policy, and their visions can contrast sharply with what the White House requests.

The administration's 10-year, $1.1 trillion deficit reduction is less than the total projected deficit for 2011 alone, which the nonpartisan Congressional Budget Office estimates will total $1.48 trillion. It also falls short of the $4 trillion in reductions the White House's bipartisan deficit-reduction commission proposed in December.

If enacted, the president's budget would bring the country's deficit to around 3% of the country's gross domestic product by 2017, an administration official said. This is higher than the 2.3% threshold the deficit-reduction commission proposed and short of the administration's target of 2015.

The White House plan would miss the goal administration officials had laid out of balancing the budget outside of interest payments by 2015.

Last year, the White House projected the deficit as a percent of GDP would be 4.2% at the end of 2020 and that total deficits as of that time would be $10.1 trillion. The deficit as a share of GDP in 2010 was roughly 10%. Two-thirds of the deficit reduction in the White House's budget proposal would come from spending cuts to mandatory and discretionary programs, both foreign and domestic, with the other one-third coming from changes to tax policy, although the details of that aren't yet clear.

House Speaker John Boehner (R., Ohio) launched a pre-emptive critique of Mr. Obama's budget, saying it leaves spending and debt too far out of balance. "The president's asked us to increase the debt limit, and yet he's going to present a budget tomorrow that continues to destroy jobs by spending too much, borrows too much and taxes too much," Mr. Boehner said on NBC's Meet the Press.

The budget proposal will recommend ending Bush-era tax cuts for the highest earners when they are set to expire at the end of 2012, though the White House didn't include the projected revenue from this in its budget forecasts. The budget projections are based on the administration's economic forecast which shows a recovering economy, but it was made before the December tax-cut compromise which, most private forecasters say, has boosted the near-term growth outlook. Faster growth could mean higher government tax revenues and a smaller deficit.

Many of the spending cuts or reductions in the budget are already known. It would, for example, freeze levels of domestic non-defense spending for five years, something the White House believes will save $400 billion.

The White House will also propose reductions to a number of federal programs, from the U.S. Forest Service to a program that provides heating assistance for low-income families. It will adopt previously recommended reductions in military spending that would reduce costs by $78 billion over several years. The budget proposal will also recommend targeted spending increases, particularly in education and infrastructure programs.

White House Budget director Jacob Lew said the administration is making hard choices in its budget to get the deficit under control. "There are scores of programs that are being reduced," Mr. Lew said on CNN's State of the Union. "We're beyond the easy, low-hanging fruit."

He said the budget would mix sensible spending with necessary cuts. For example, it would enable nine million people to take advantage of Pell grants, Mr. Lew said, but to pay for that, it would eliminate Pell grants during the summer, limiting them to the academic year. Similarly, the budget will help pay for 100,000 new teachers, especially in the math and sciences. But it would also begin applying interest to graduate students' loans while those students are still in school.

"The challenge we have is to live within our means but also invest in the future," Mr. Lew said. "We're doing what every family does when it sits around the table."

Rep. Paul Ryan (R., Wis.), chairman of the House Budget Committee, said the president's five-year freeze on discretionary spending simply locks the government into a high level of spending.

"This discretionary freeze is off of an extremely high base," Mr. Ryan said on Fox News Sunday. "They just blew spending off the gates in the last two years...It looks like to me that [Mr. Obama's budget] is going to be very small on spending discipline and a lot of new spending, so-called investments."

Neither party has proposed significant cuts to entitlement programs like Medicare and Social Security, which make up an outsized proportion of the budget but are politically difficult to cut.

"I think it's incumbent on leaders here in Washington to help the American people understand how big the problem is," Mr. Boehner said. "Once the American people get their arms around how big the problem is, then and only then" can solutions be laid out.