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News : International Last Updated: Apr 24, 2009 - 5:31:05 PM


Obama proposes budget deficit of $1.75 trillion or 12.3% of GDP - - highest since 1942
By Finfacts Team
Feb 27, 2009 - 4:52:26 AM

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President Obama launches the budget for fiscal year 2010, beginning on Oct 1, 2009, at the White House on Thursday, Feb 26, 2009. The blueprint is titled: A New Era of Responsibility

President Barack Obama on Thursday delivered a $3.6 trillion budget for the fiscal year ending September 2010 and said it aims to "break from a troubled past," with expanded government activism, tax increases and spending cuts targeted at those he says profited from "an era of profound irresponsibility." The budget plan projects a federal deficit of $1.75 trillion for 2009, or 12.3% of the gross domestic product (GDP), a level not seen since 1942, the first year of World War II for the United States.

The size of the deficit was kept down because of what some critics claimed to be optimistic growth projections.

The budget  for fiscal year 2010, provides for expanded national health care, energy development and education programs.

An additional $250 billion to complete the plan to rescue the financial markets and stabilise the banking sector has been provided, on top of the $700 billion already allocated by Congress.

While engagement in Iraq is expected to end, increased resources will be provided for the war in Afghanistan. The Defense Department gets an additional $20.4 billion - - a 4% increase from this year. Obama plans to request an additional $75.5 billion for the wars in Iraq and Afghanistan for the rest of 2009 and another $130 billion for 2010.

Families earning over $250,000 and a some businesses will pay higher taxes. Polluters will be required to purchase permits for emissions to bring them down to 14%  below 2005 levels by 2020 and 83% below 2005 levels by 2050. The sale of the permits, beginning in 2012, would raise $646 billion through 2019.

"We need to be honest with ourselves about what costs are being racked up, because that's how we'll come to grips with the hard choices that lie ahead,"Obama said Thursday. "And there are some hard choices that lie ahead."

President Obama said his $630 billion fund for a national health insurance program will not be enough to provide access to health care for all Americans, but he said it will be a start.

In his introduction to the budget blueprint, President Obama said: "This crisis is neither the result of a normal turn of the business cycle nor an accident of history.

We arrived at this point as a result of an era of profound irresponsibility that engulfed both private and public institutions from some of our largest companies’ executive suites to the seats of power in Washington, D.C. For decades, too many on Wall Street threw caution to the wind, chased profits with blind optimism and little regard for serious risks—and with even less regard for the public good.

Lenders made loans without concern for whether borrowers could repay them. Inadequately informed of the risks and overwhelmed by fine print, many borrowers took on debt they could not really afford. And those in authority turned a blind eye to this risk-taking; they forgot that markets work best when there is transparency and accountability and when the rules of the road are both fair and vigorously enforced.

For years, a lack of transparency created a situation in which serious economic dangers were visible to all too few. This irresponsibility precipitated the interlocking housing and financial crises that triggered this recession. But the roots of the problems we face run deeper. Government has failed to fully confront the deep, systemic problems that year after year have only become a larger and larger drag on our economy. From the rising costs of health care to the state of our schools, from the need to revolutionize how we power our economy to our crumbling infrastructure, policymakers in Washington have chosen temporary fixes over lasting solutions."

President Barack Obama and Office of Management and Budget Director Peter R. Orszag discuss the federal budget in the Oval Office Monday, Jan. 26, 2009, during the President's first week in office.

 

Clearing up a misconception: “tax hikes during a recession”?

Peter Orszag, Director of the White House Office of Management and Budget commented: "One of the questions I received throughout the day today, as we released the Fiscal Year 2010 budget, is why we are proposing to raise taxes on high-income taxpayers during a recession.  And the answer is simple: we’re not.

First, the Recovery Act that was enacted earlier this month included $288 billion in tax reductions, as part of an overall effort to bolster the economy and help to fill in the "GDP gap" (the gap between how much the economy could produce and how much it is current producing).  During a recession, we’re cutting taxes.

Second, as the economy recovers, we will need to begin bringing down the budget deficit to avoid a fiscal crisis in the future.  So as we come out of the recession, and consistent with the President’s campaign proposals, the Budget combines spending reductions and revenue increases – with the revenue increases applying to high-income taxpayers (those with incomes of $250,000 or more) and corporations.   The roughly $2 trillion in deficit reduction that the Budget contains for the next decade is split evenly between spending reductions (of roughly $1 trillion) and revenue increases (of roughly $1 trillion). 

Let’s focus specifically on the revenue increases for high-income taxpayers.   The Budget proposes that the tax cuts currently enjoyed by those with incomes above $250,000 be allowed to expire at the beginning of 2011, at which point the economy should have recovered from the current downturn.  Again, the revenue increases for those with incomes of $250,000 or more a year would become effective January 1, 2011 – and not before."

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