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No space for Barack Obama to manoeuvre in US budget

Hemmed in by shrunken tax revenues and a need to spend a still-fragile economy into a sustained recovery, a grim-faced President Barack Obama yesterday unveiled a new budget that forecast a record deficit of $1.56 trillion (£0.98tn) this year and offered little short-term prospect of rescuing America from its huge debt.

The budget proposal, subject to amendment by Congress, served as a reminder both of the sheer weight of America's budget imbalance and the depth of the predicament it creates for Mr Obama.

Nasa, for example, will see its efforts to put astronauts back on the moon shut down, and the document contains a scattering of other budget cutbacks.

The President is straining to strike a balance between looking serious about tackling the runaway national debt and fuelling the nascent economic upswing. Beneficiaries of increased spending will include small firms, the unemployed and the Pentagon.

While last year was about healthcare reform and the stumbling efforts to pass it, this may be the year when America confronts its budgetary dysfunction, not least because overspending by Washington and the corrosive effects of the deficit are top of voter concerns in a mid-term election year. It is partly the perception of a government that has grown too large and too profligate that is souring independent voters on Mr Obama and the Congress.

Mr Obama said he welcomed all suggestions on cutting spending. But striking a stern tone, he said: “It's time to hold Washington to the same standards families and businesses hold themselves. It's time to save what we can, spend what we must, and live within our means once again.” And, he added, spending could not continue “as if the hard-earned tax dollars of the American people can be treated like Monopoly money”. The White House had trailed the budget announcement for days with a promise to institute a three-year spending freeze for certain areas of domestic spending.

Mr Obama is proposing an end to the Bush-era tax cuts for the wealthiest Americans and hopes to institute a fee on the banks to help pay for the losses under the unpopular bailout programme.

According to the White House projections, these and other measures should be enough to lower the annual deficit to roughly $700bn (£440bn), about 4.2% per cent of national GDP, by late 2013.

But the long-term spending priorities spelled out yesterday would add $8.5tn to the national debt by 2020, increasing debt as a proportion of GDP to 77% compared to 53% now.

The budget includes a call for a $100bn programme immediately to boost job growth.

“We won't be able to bring down this deficit overnight, given that the recovery is still taking hold,” Mr Obama said. “We will continue to do what it takes to create jobs. It is essential.”

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