White House Proposes $3.8 Trillion Budget

Wall Street Journal | February 1, 2010
By Jonathan Weisman

President Barack Obama proposed a $3.8 trillion budget for fiscal 2011 that will add fuel to the debate over the size and scope of government. The plan includes big increases in personal and business taxes, modest spending cuts and increased outlays for education, defense and jobs initiatives.

In the days leading up to Monday's release, the Obama administration has focused on proposals to cap so-called discretionary spending, roughly 17% of the total budget, as part of a plan to narrow the record $1.6 trillion gap between proposed budget outlays and tax receipts. But the budget plan calls for nearly $1 trillion in tax increases on upper-income families—largely by allowing Bush tax cuts to expire. Banks, bankers and multinational corporations would face new fees and levies. And oil companies would lose $39 billion in tax breaks.

Overall, Mr. Obama's budget plan would shrink the current deficit to $727 billion, or 4.2% of the gross domestic product, by 2013. But if annual deficits shrink, the total federal debt will keep growing. In all, the president's budget would add $8.5 trillion to the federal debt through 2020, pushing the debt as a percentage of GDP to 77% from 53%.

Kenneth Rogoff, a Harvard University economist who has studied other countries' experiences, said that level could push the U.S. toward a tipping point where interest rates could soar, the value of the dollar could plunge and the economy could face another crisis.

Full article here