Special Report: Barack Obama: The 44th U.S. President

Special Report: Global Financial Crisis

U.S. President Barack Obama (Front) makes a statement about the Fiscal Year 2010 budget in the Eisenhower Executive Office Building in Washington, February 26, 2009. (Xinhua/Zhang Yan) Photo Gallery>>>

    Obama's budget entails massive spending to pull the nation out of recession, and leaves open the possibility he will need an additional 750 billion dollars in bailout money.

    But analysts believe the massive budget, which Obama calls as "an honest accounting," is likely to set off a war of words in Congress for it contains too many difficult-to-digest ideas.

    HONEST ACCOUNTING

    The huge deficit figure will represent 12.3 percent of the U.S. economy, the largest share since World War II.

    "In keeping with my commitment to make our government more open and transparent, this budget is an honest accounting of where we are and where we intend to go," Obama said before releasing the budget.

    The 134-page budget also sets aside a 634 billion dollar "reserve fund" as a down payment to cover roughly two-thirds of the anticipated 10-year cost of the universal health care program, projected at 1 trillion dollars.

    According to the budget, a tax cut for the middle class enacted in the recent stimulus package will be made permanent.

    That will extend a 400-dollar tax credit for most workers, and 800 dollars for couples, while it expires President George W. Bush's tax cuts for couples making more than 250,000 dollars a year.

    It will raise the top income tax bracket from 35 percent to 39.6 percent for those taxpayers and raise their capital gains rate from 15 to 20 percent as well.

    The budget also seeks 177 billion dollars in savings over 10 years by reducing government subsidies to Medicare Advantage, the private-sector insurance component of Medicare.

    Under Medicare Advantage, private insurers provide government-approved health insurance coverage and are reimbursed for costs on an annually adjusted basis.

    Obama's budget also includes hundreds of billions of dollars in revenues starting in 2012 and spread out over many years from a greenhouse gas emissions trading system.

    LESS WAR SPENDING

    Obama also seeks 205.5 billion dollars for wars in Iraq and Afghanistan, including 75.5 billion dollars through the end of this fiscal year, and 130 billion dollars for fiscal year 2010.

    Aside from the war spending, he will also request 534 billion dollars for the Defense Department's other expenditures.

    The amounts for the wars are less than Defense Secretary Robert Gates asked for and are in line with the expectation that the president plans a major reduction of U.S. troops in Iraq.

    The extra funding for fiscal 2009, which ends on Sept. 30, includes money for adding 17,000 personnel to the U.S. force in Afghanistan.

    Congress has already approved 65.9 billion dollars in emergency wartime spending for the first half of fiscal 2009.

    In addition to the 75.5 billion dollars Obama is seeking, the latest request would bring the total to about 141.4 billion dollars, the lowest amount for war spending since fiscal 2006 when Congress approved 121.5 billion dollars.

    Congress approved 187 billion dollars for fiscal 2008, the highest since the Sept. 11 terror attacks.

    Administration officials said annual war costs will go down to 50 billion dollars annually as Obama is expected to announce a new plan to withdraw most troops from Iraq by August 2010.

    REPUBLICANS' OPPOSITION

    "They've painted the worst-case scenario in order to make it as easy as possible to improve on," Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, said.

    "This budget is more realistic than we've seen in the past, in that it actually includes all the policies the administration is supporting. But I'd like to see them go much further in terms of fiscal responsibility in actually closing that deficit gap," he said.

    The Democrats also welcomed the massive budget. "It's a bold plan. This is big stroke. This is not a budget about little things," Rep. Chris Van Hollen, a member of the House leadership, was quoted by The Washington Post as saying.

    "The president knows there are a lot of big lifts in this budget. But in order to turn the economy around and lay the foundation for long-term prosperity, we have to make these tough decisions," Hollen said.

    However, the Republicans attacked the plan as a new spending bonanza that fails to address the current crisis and hurts the interests of middle-class families and small businesses.

    "It's a hollow number," Sen. Judd Gregg, a senior Republican on the Senate Budget Committee, said. He recently withdrew as Obama's nominee to head the Commerce Department. "A 1.4 trillion tax hike is not the solution to our economic woes."

    Republican Senator George Voinovich said Obama had "botched spending priorities" and had made "absurd" claims about deficit deduction.

    "If there's anything that economists on the left and right agree on, that supply-siders, classic economists and Keynesians agree on, you don't raises taxes in a recession," Republican Representative Paul Ryan said. "The budget is raising taxes in a recession."

    Obama's plan, which contains so many difficult-to-digest ideas, would be virtually certain to be significantly redrafted during debates later in the year, the U.S. media said.

    "It's going to be a tough row to hoe, but he has large Democratic majorities and a lot of popular support and we're in times of crisis," Robert Reischauer, president of the Urban Institute, said.

    "So the prospects of him getting much of what he is seeking, while not good, are higher than ... we've seen in the past," he said.

    Obama also acknowledged the criticism. He expects the deficit to decline steadily in the coming fiscal years to reach 533 billion dollars by 2013, in line with his promise to cut the deficit by half by the end of his first term.

    The president, who inherited more than a 1 trillion dollars deficit when he took office, also warned there were "some hard choices that lie ahead" due to the current economic crisis.