PREVIEW-Obama budget to assure investors while boosting jobs

(For more on the budget, click on [ID:nN30164446])

* Obama must balance jobs goal with fiscal prudence

* Three-year spending freeze to save $250 billion by 2020

* No deficit reduction seen before 2011

By Alister Bull

WASHINGTON, Jan 31 (BestGrowthStock) – U.S. President Barack Obama
on Monday will unveil a budget that must balance his short-term
political imperative to boost jobs, while convincing investors
he has a credible plan to curb record deficits over time.

Obama has previewed key details of his budget for fiscal
2011, including a freeze on some domestic spending and a
commission on fiscal responsibility. He has also told creditors
like China he understands that failing to tackle the deficit
could ultimately erode confidence in the United States.

Obama risks being painted in an election year by his
Republican Party foes as a tax-and-spend liberal after he
pumped hundreds of billions of dollars into the economy. He
said this action was vital to staving off a depression, while
Republicans say the money was misspent.

But Obama faces greater political peril if he fails to ease
unemployment, now at 10 percent, and said the budget will not
be cut while the economy is recovering, declaring in last
week’s State of the Union address that jobs were his top
priority.

“The budget deals with a complex situation that takes steps
to ensure the recovery is sustained and job growth
accelerates,” said James Horney at the Center on Budget and
Policy Priorities, a liberal-leaning think-tank in Washington.

U.S. growth jumped at a 5.7 percent annualized pace in the
fourth quarter of 2009, but this has yet to result in the rate
of prolonged job creation needed to replace the 7 million jobs
lost since the country tipped into recession in December 2007.

As a result, there is not much chance of the deficit
shrinking before 2011.

“In the short run, the deficit will grow as an unfortunate
necessity to stimulate the economy. But it will also
demonstrate the president is committed to getting the deficit
down to a sustainable level,” said Horney, who is director of
federal fiscal policy at the Center.

SPENDING FREEZE

Obama has proposed a three-year freeze on domestic spending
excluding national security and Social Security, Medicare and
Medicaid entitlement programs, which he says will save $20
billion in fiscal 2011 and $250 billion by 2020.

The U.S. leader will propose trimming or chopping 120
government programs to help rein in the U.S. deficit, the White
House said on Saturday, in a 2011 budget proposal that the New
York Times reported would hit $3.8 trillion. [ID:nN30168134]

The White House declined to confirm or deny the report.

The newspaper said the proposal would include $25 billion
for struggling states and provide funding increases for
programs at the Energy Department, National Institutes of
Health, National Science Foundation and the Census Bureau.

An administration official confirmed to Reuters that the
budget would include a 6 percent increase in civilian research
programs. The New York Times said space agency NASA’s mission
to fly back to the moon would be scrapped and some public works
projects by the Army Corps of Engineers would lose funding.

Budget experts also expect the numbers to anticipate drops
in the cost of fighting wars in Iraq and Afghanistan, where
Obama has laid out timetables for withdrawing U.S. forces, as
well as growing tax revenues as the economy regains altitude.

The nonpartisan Congressional Budget Office forecasts a
small improvement in the 2010 budget deficit to $1.35 trillion,
or 9.2 percent of gross domestic product, from a post World War
Two record of $1.4 trillion, or 9.9 percent of GDP, in 2009.

It forecasts this deficit declining steadily to 4.1 percent
in 2012, when Obama faces reelection, which would also meet a
pledge he repeated in the State of the Union speech to halve
the deficit by 2013.

But critics say this is based on assumptions about raising
revenue from his keynote policies such as cap-and-trade, which
they do not think have any chance of becoming law, as well as
allowing tax cuts on wealthy Americans to lapse.

“I don’t think the president can cut the deficit over the
next decade through his current budget plans,” said Brian Riedl
at the conservative Heritage Foundation in Washington, although
he expected Obama to declare otherwise.

“The White House understands the American people are
extremely worried by the high budget deficit … In an election
year, the president cannot be seen as behaving in a fiscally
irresponsible fashion,” he said.

Earlier this month Obama’s Democrats lost a U.S. Senate
seat in Massachusetts long held by the late Edward Kennedy,
foreshadowing potential heavy losses in November mid-term
congressional elections if voters remain unhappy.

Obama may view the lesson from Massachusetts to be that
voters are concerned about jobs rather than the country’s
fiscal outlook, and long-time budget watcher Stan Collender
scoffed at the notion that voters cared about it.

“The budget is seldom the issue that voters vote on. What
they do care about is the economy and their own jobs,” said
Collender, a congressional budget staffer in the 1980s and now
a partner at Qorvis Communications in Washington.

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(Editing by Eric Walsh and Paul Simao)

PREVIEW-Obama budget to assure investors while boosting jobs