Barack Obama, Federal Budget

OBAMA FOR USA. On Feb. 26, Mr. Obama proposed a 10-year budget that would overhaul health care, address global warming, broaden the federal role in education and shift more costs to some corporations and the wealthiest taxpayers. He projected the budget for fiscal year 2010 of nearly $3.6 trillion.

The president inherited an economy in recession and reeling from interrelated credit and housing crises, with the deficit for the current budget year projected to reach a stunning $1.75 trillion. By the last year of his term, in the 2013 fiscal year,Mr. Obama projects a deficit of $533 billion, or 3 percent of the overall economy, a level that economists consider sustainable. None of the new taxes and other sources of revenue used to bring down the deficit would take effect, however, until the economy rebounds.

For savings, Mr. Obama proposed cuts in direct payments to agribusinesses and farmers with more than $500,000 in annual revenue -- a measure that soon appeared to wither on Capitol Hill. His proposal to cut annual subsidies to private banks making college loans has already drawn fire from the banks and members of Congress of both parties with large student loan companies based in their districts. The plan is the main money-saving component of his education agenda, which includes a sweeping overhaul of financial aid programs. By replacing the subsidies with direct government lending, $94 billion would be saved over the next decade, money that would be used to expand Pell grants for the poorest students.

Of the $3.55 trillion requested for the 2010 fiscal year beginning in October, more than $2 trillion is mandatory spending for the programs -- chiefly Medicare, Medicaid and Social Security -- that provide benefits to all who are eligible.

The president would remake the energy sector to reduce reliance on foreign oil and address global warming, by requiring industries to buy permits to emit the heat-trapping gases that contribute to global warming. The revenue would pay to develop alternative energy sources and to provide tax relief for Americans facing higher prices from utilities and industries passing on their permit costs.

Mr. Obama's tax proposals would reverse a trend toward greater income inequality in recent years by adding about $1 trillion over 10 years to the tax burden of the top 5 percent of taxpayers, roughly those making more than $250,000 a year. He would let the Bush income-tax cuts lapse after 2010 as scheduled for people at that income -- he would extend them for everyone else -- and limit the deductions top-earners can take. He would also raise income taxes on hedge fund and private equity partners.

On May 11, the Office of Management and Budget reported that the economy had added -- both for 2009 and 2010 -- $90 billion to the historically high deficit estimates the administration issued just two months earlier. The budget office's revised projections brought the expected shortfall in the 2009 fiscal year, which ends Sept. 30, to $1.84 trillion, from a February projection of $1.75 trillion. For the 2010 fiscal year, the new estimate is $1.26 trillion, up from $1.17 trillion.

In June, Mr. Obama announced he was sending legislation to Congress to restore the 1990s-era "pay as you go" law, known as Paygo. The law, in effect from 1990 to 2002, required that tax cuts or new entitlement spending -- like the health care overhaul that Mr. Obama hopes will be a signature domestic achievement -- be paid for through budget cuts or tax increases. The restriction would not apply to so-called "discretionary" spending that finances most government programs aside from Medicare and Social Security.

"The ‘pay as you go' principle is very simple," Mr. Obama told a group of Congressional Democrats in the East Room of the White House. "Congress can only spend a dollar if it saves a dollar elsewhere."

But critics of Paygo say it is not simple at all, because Congress has a long history of waiving its requirements. And White House officials conceded Mr. Obama's proposal would not put a dent in the federal deficit. It would only keep it from getting bigger.