Obama aims to control 'exploding' deficits

Agence France-Presse

Posted at Feb 22 2009 08:54 PM | Updated as of Feb 23 2009 04:54 AM

WASHINGTON - US President Barack Obama is vowing to tackle trillion-dollar budget deficits facing the nation after he launched an unprecedented spending program aimed at kick-starting the troubled US economy.

Work on the deficit would begin on Monday, said Obama, when he would convene a fiscal summit of independent experts, unions, advocacy groups and members of Congress to discuss how the trillion-dollar deficit could be cut.

He also promised to tackle the issue in Tuesday's address to the nation, in which he planned to outline urgent national priorities.

He and his administration were determined to do "all we can to get exploding deficits under control as our economy begins to recover," he said in his weekly radio address Saturday.

Even before the spending commitments in Obama's new package, the Congressional Budget Office said the provisional US budget deficit in fiscal 2009 would balloon to a record 1.2 trillion dollars.

The deficit for the fiscal year 2008, which ended in September, reached 438 billion dollars, or 3.1 percent of the nation's gross domestic product, the office said in a report last month.

On Tuesday however, Obama signed into law an economic stimulus plan that commits to another 787 billion dollars' spending.

Roughly one-third of the stimulus funds, 286 billion dollars, will be spent on tax cuts in a bid to boost consumer spending, a key engine of the world's largest economy.

Another 120 billion dollars has been allocated to infrastructure projects in transportation, road-building and work improving the power grid and renewable energy installations.

Leading Republicans and other critics have said the mammoth spending plan was mortgaging the nation's future.

But a senior administration official has told AFP that Obama planned to cut the federal budget deficit in half by the end of his first term.

Savings would be made by cutting spending on the war in Iraq and by eventually raising taxes for the "wealthiest Americans," the official said.

Although the official did not specify how much money a person would have to be making to fall into that category, during the election campaign Obama included people making more than 250,000 dollars a year in this group.

On Thursday, the White House will release its budget blueprint.

Obama has described it as "sober in its assessments, honest in its accounting, and lays out in detail my strategy for investing in what we need, cutting what we don't, and restoring fiscal discipline."

According to The New York Times, the president is proposing to tax the investment income of hedge fund and private equity partners at ordinary income tax rates instead of the capital gains rate, which does not exceed 15 percent.

Income tax rates are currently as high as 35 percent and could return to 39.6 percent the president's under his plans.

Obama used his radio address to again showcase his recovery plan, saying that because of it, "three and a half million Americans will now go to work doing the work that America needs done."

Starting this Saturday, he said, employers had begun reducing taxes for 95 percent of working American families as mandated by the stimulus package.

By April, the average American family would begin to keep an additional 65 dollars each month, he added.

But the president acknowledged that signing the stimulus plan into law was only a first step on the road to economic recovery.

A complete recovery would require stemming the spread of real estate foreclosures and falling home values; stabilizing and repairing the banking system in order to restore the flow of credit to families and businesses; and reforming the broken regulatory system that made the crisis possible, he said.

"None of this will be easy," he cautioned. "The road ahead will be long and full of hazards. But I'm confident that we, as a people, have the strength and wisdom to carry out this strategy and overcome this crisis."