WASHINGTON, (Reuters) – President Barack Obama forecast the biggest US deficit since World War Two in a budget yesterday that urges a costly overhaul of the healthcare system and would spend billions to arrest the economy’s freefall.
An eye-popping $1.75 trillion deficit for the 2009 fiscal year dominated attention as the Democratic president unveiled his first budget. That amounts to a 12.3 percent share of the economy — the largest since 1945. In 2010, the deficit would dip to a still-huge $1.17 trillion.
Obama promised to get the red ink under control but showed no sign the staggering deficits would deter him from veering sharply away from the policies of his Republican predecessor President George W. Bush.
The Republican opposition in Congress was quick to condemn a budget plan that underlines Obama’s intention to make good on campaign pledges to expand health coverage for the uninsured and roll back tax cuts for the wealthy.
“I don’t think that we can continue on our current course. I work for the American people, and I’m determined to bring the change that the people voted for last November,” he said.
Republicans condemned the plan as showing a dedication to “tax-and-spend” policies, presaging major political fights getting the budget passed,.
“The American people know we cannot tax, spend and borrow our way back to a healthy economy,” said Representative Mike Pence, a member of the Republican leadership in the House of Representatives.
The soaring deficit figure sent U.S. Treasury bond prices lower and yields up to three week highs yesterday.
Gold prices slid to their lowest level in more than a week, after testing all time highs over $1,000 an ounce earlier this month. Stock prices rose.
Some analysts questioned whether Obama’s goals were realistic at a time when the economy is still in crisis and the surging deficits threaten to burden the economy for years to come.
“There are some good things in this budget but a lot still seems very wasteful. The market is crumbling around us and economies are in the tank,” said Dan Cook, senior market analyst with IG Markets in Chicago.
Although tax cuts and social-service spending are a main part of Obama’s remedies for lifting the faltering economy, the budget also pencils in $250 billion to help stem the turmoil in the banking sector.
Obama has not decided whether to seek that money.
But if he does, that would add to the existing $700 billion financial bailout program, which was passed under Bush and has been highly unpopular with many Americans who see it rewarding Wall Street bankers seen as having made reckless bets on subprime mortgages.
The proposed $3.55 trillion spending plan for the 2010 fiscal year that begins Oct. 1 provides the broad outlines of a more detailed one to be released in April.
The budget requires passage by Congress to take effect. While Obama has broad support with both chambers controlled by Democrats, he could face a fight as the sticker shock of huge deficits lead to wariness — including among fiscal conservatives in his own party — about expensive goals such as the healthcare overhaul.
The deficit number reinforced concerns the government will need to sell record amounts of debt to pay for programs aimed at pulling the economy out of a deep recession.
Obama set a goal of slashing the deficit to $533 billion, or 3 percent of GDP by 2013. A rollback of the Bush tax cuts for wealthy Americans and a planned drawdown of U.S. troops from Iraq are expected to help rein in the shortfall.
Obama is seeking an additional $75.5 billion for wars in Iraq and Afghanistan for the rest of the current fiscal year. He is requesting $130 billion for military operations in the two wars for 2010, which would be down from the roughly $140 billion he expects will be needed this year.
Washington spent about $190 billion on the wars in 2008. Obama looks likely to order U.S. combat troops to withdraw from Iraq over about 18 months, according to U.S. officials. At the same time, he is ramping up the U.S. military effort in Afghanistan.
Obama’s budget proposal lays out spending cuts in farm subsidies and other areas to meet the deficit-reduction goal.
But such programs are popular with lawmakers from states with big agricultural sectors who may be loath to allow cuts.
The budget includes billions in revenues, starting in 2012, from a greenhouse gas emissions trading system. That is central to Obama’s proposals to fight global warming which are a major departure from the policies of Bush, who was widely criticized by environmentalists for resisting action.
The $1.75 trillion budget deficit forecast for this year reflects shortfalls accumulated under Bush as well as new spending proposals under the $787 billion economic stimulus package the Democratic president signed earlier this month.
While Obama remains highly popular with Americans, his stimulus package and other efforts to revitalize the economy have done little to win over Wall Street.
U.S. stocks prices hit 12-year lows this week.