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Obama Avoids Entitlements in Fiscal 2012 Budget Request

Updated: 10:31 a.m.

President Barack Obama has presented a $3.7 trillion fiscal 2012 budget request Monday that his administration contends will return annual deficits to a sustainable level by mid-decade without substantial cuts to Medicare, Medicaid or Social Security.

The plan cuts $1.1 trillion in deficits over the coming decade, with about two-thirds coming from spending reductions and the rest from tax increases, according to two senior administration officials.

That’s a quarter of the $4 trillion deficit reduction proposed in December by the president’s National Commission on Fiscal Responsibility and Reform, because the president’s plan largely avoids the debate over trimming the big entitlement programs that threaten to gobble up an ever-larger share of the budget as the baby boomer generation retires.

The request will land with a thud in the House, where Republicans unveiled a continuing resolution last week to fund the government through the end of fiscal 2011. The measure would cut discretionary spending by $100 billion compared with Obama’s fiscal 2011 budget request.

The administration, however, sees its budget request as an opening for working with Republicans. Officials point to Obama’s successful negotiation last year of an extension of the 2001 and 2003 tax cuts as a hopeful sign that the White House and the GOP can come together.

“Even though we may have some differences at the outset, we are very eager to work with the Republicans to cut spending [and] reduce our deficit,” a senior administration official said. “The debate in Washington is not whether to cut or to spend. We both agree we should cut. The question is how we cut and what we cut.”

Even the GOP’s plans for cutting fiscal 2011 discretionary spending would only put a small dent in this year’s deficit, which the White House projects will near $1.65 trillion, well above the $1.5 trillion recently projected by the Congressional Budget Office and easily a record.

Under Obama’s plan, the deficit would rapidly shrink over the next three years, to $1.1 trillion in 2012, $768 billion in 2013 and $645 billion in 2014. The deficit would hold steady through 2021 at about 3 percent of gross domestic product, a level that the administration considers sustainable.

“We can live within our means and invest in our future,” a second senior administration official said. “We think this path is a sustainable path.”

The improving numbers, however, assume an economic recovery, an unprecedented five-year domestic discretionary spending freeze, falling war costs, and various tax increases and spending cuts that have already been rejected by Congress — in short, a rosy scenario.

Obama’s budget nods to the budget-cutting fervor on Capitol Hill by proposing more than 200 program cuts that would save $33 billion in the first year.

Community Development Block Grants would be cut by $300 million, for example, and home energy assistance for the poor would be chopped in half, saving $2.5 billion. Pell Grants for summer school would disappear.

The belt-tightening extends to the Pentagon, with $78 billion in cuts that Defense Secretary Robert Gates has proposed. Coupled with dramatically lower costs in Iraq, overall defense spending will shrink 5 percent next fiscal year.

A roughly $300 billion proposal would cap tax deductions for the wealthy at 28 percent, which would offset three years of patches to the alternative minimum tax. Obama proposed the tax increase when Democrats were in charge last year, to no avail.

The budget request would pay for a two-year patch to doctors’ pay under Medicare by cutting $62 billion elsewhere. There is also a medical malpractice initiative, an issue sure to come under fire from his fellow Democrats.

Obama’s budget assumes that the 2001 and 2003 tax cuts will expire at the end of 2012 for the wealthy. The Bush-era tax cuts were extended for all income brackets for two years under the deal Obama and Senate Republicans negotiated last year, although the administration had wanted to limit the extension to income up to $250,000.

The blueprint isn’t all pain. Obama wants to start an ambitious nationwide plan for high-speed rail, launch a national wireless broadband network, and modestly increase funding for energy and health research.

Those proposed investments face a tough road in the House. The House GOP’s fiscal 2011 spending bill includes billions in cuts to science budgets, and Speaker John Boehner (Ohio) has blasted Obama’s talk of new investments as wasteful government spending.

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