Budget request projects $1.56 trillion deficit

President Barack Obama’s budget request projects a record $1.56 trillion deficit this year and levels of red ink over the next decade that even the White House acknowledges as unsustainable.

The budget plan, to be released Monday, forecasts yet another rise in the deficit, which has been at unprecedented levels two years running. The deficit hit $455 billion in 2008 and $1.4 trillion last year due in large part to the recession and increased unemployment, which pushed down tax revenues and led to government spending on economic stimulus. The Obama budget expects the deficit to fall starting in 2011 as the economy bounces back, tax revenue returns and spending on unemployment and COBRA benefits drops.

{mosads}The administration will try to reduce the deficit through new taxes on large financial firms, the expiration of tax cuts on people making more than $250,000, ending subsidies for oil, gas and coal companies and through savings measures such as a three-year freeze on non-defense discretionary spending. The administration also finds savings by allowing the Making Work Pay tax credit, a centerpiece of Obama’s presidential campaign and his $787 billion stimulus, to expire after 2011.

But those measures will come gradually to avoid harm to the economy, said White House Budget Director Peter Orszag.

“One of the things we try to balance here is to have a relatively smooth landing, a smooth glide path [from] levels we are experiencing to a more sustainable level,” Orszag said. “The reason that’s important is to avoid the 1937 risk to bring down the deficit too quickly and send the economy back in to recession.”

Orszag acknowledged that those deficit-reducing measures won’t be enough to get the deficit down to the administration’s target of a budget equivalent to 3 percent of the country’s economic output. To hit that target would mean the government had balanced its budget except for money spent on debt interest payments, Orszag said.

The deficit would bottom out under Obama’s plan at $706 billion, or 4 percent of GDP, in 2014 before beginning to rise again the next year.

To reach his deficit target by 2015, the president plans to rely on recommendations from a bipartisan fiscal commission that he will create by executive order, Orszag said.

“[It’s] long been believed that in order to go rest of the distance in regard to a medium-term deficit, a bipartisan process is necessary,” Orszag said.

Republicans have said that they’re not interested joining a commission created by the president, which would be weaker than bipartisan commissions that have been proposed by lawmakers but have stalled. Sen. Judd Gregg (R-N.H.), who worked with Sen. Kent Conrad (D-N.D.) on one bipartisan plan, has said that he would not serve on Obama’s commission largely because it wouldn’t have the power to force lawmakers to vote on its recommendations, which Gregg and Conrad’s proposal would. Senate Minority Leader Mitch McConnell (R-Ky.), who once supported the Conrad-Gregg plan, voted against it last week, warning that it could reduce the deficit through tax hikes.

Obama administration officials sought to blame Republicans for much of the bleak fiscal picture. In previewing the budget, Orszag noted that much of the deficit was in place before Obama entered office, and that further spending, such as the $787 billion recovery act, was needed to prevent an economy from worsening further.

The country “just came through a year in which we averted a depression,” said White House budget director Peter Orszag.

The independent Congressional Budget Office had projected a $1.2 trillion deficit in 2009 before Obama had become president and trillions more in debt in future years due to tax cuts and a Medicare prescription drug benefit enacted by the Bush administration that weren’t paid for, Orszag noted.

He said that the latest budget plan reflects the administration’s focus on “job creation, middle-clas security and a path to fiscal sustainability.”

The budget will feature a number of measures that Obama hopes will be part of a jobs bill, which he urged lawmakers last week to pass “without delay.” Obama, who called on lawmakers last week to pass the job creation package “without delay,” is pushing a $33 billion tax credit for firms that hire new workers or raise wages, the elimination of the capital gains tax for small businesses, an increased child-care tax break for middle-class families and the extension of the stimulus tax credit allowing small businesses to write off up to $250,000 in investment.