Page last updated at 23:36 GMT, Thursday, 26 February 2009

New president, new budget goals

By Karen Nye
Business reporter, BBC News, New York

President Barack Obama's first budget demonstrates a clear change in direction from the previous administration.

Barack Obama
President Obama will give more details of his budget in April

As promised on the campaign trail, and despite the recession, he wants to increase spending on education, healthcare and the environment and pay for much of that by shifting the tax burden to wealthy Americans.

Critics on the right say he is engaging in class warfare, but he says it is just a fairer approach, following eight years when the playing field was tilted towards those with the most resources.

By letting the tax cuts sponsored by President George W. Bush expire, billions of dollars in revenues will suddenly be available.

At the other end of the scale, the new budget gives more tax breaks to lower and middle income Americans.

Healthcare for all

Going through the numbers, the new president's stated priorities of education, healthcare and the environment garner spending increases through many different departments and programmes.

Education dollars are directed primarily towards two areas: early childhood education, which many educators believe is crucial to later success, and university education, which more and more jobs require.

The budget also increases money for basic science research, saying Americans should not fall behind other countries.

New government spending on healthcare includes more than $600bn (419bn) set aside over 10 years for unspecified purposes, but aimed at eventually providing healthcare for all Americans, a goal not shared by everyone.

Traditionally proponents of the free market, Americans have been conditioned to distrust anything that smacks of "socialism", but as millions of people join the list of uninsured each year, and employer-provided healthcare becomes more costly and covers less, people in the middle agree that the current, mostly private, healthcare system is not working well.

The stimulus package started the healthcare ball rolling with billions allocated to computerise medical records in an effort to avoid repeating expensive tests.

The new budget also includes $1bn for preventive care, something rarely covered by private American health insurance.

Even the Department of Veterans Affairs includes more spending on healthcare for former soldiers.

Green policies

The 2010 budget grants the Environmental Protection Agency a 34% funding increase, including almost $4bn for clean water projects, such as restoring the Great Lakes that border Canada.

Other funding increases for labour and housing provide money to train young people in "green" jobs, including how to make houses more energy-efficient.

Government agencies are expected to save money on energy use, and oil, gas and mining companies will lose various tax breaks.

President Obama is unapologetic about the size of his $3.6tn budget, and the associated deficit, expected to reach $1.75tn next year, equivalent to more than 12% of gross domestic product.

He says, first of all, that he inherited a $1tn deficit from former President Bush, and that the current needs are urgent.

He has already warned that this scale of spending cannot continue, and plans to reduce the deficit to $533bn in four years, by 2013.

That sounds hard to do, but President Obama is counting on a windfall from letting the 43rd president's tax cuts expire.

Using the trickle-down theory, those were angled towards corporations and the wealthy, in the belief that they would invest in the economy and create jobs.

The 44th president says that didn't work, and discredits trickle-down economics, also used by President Ronald Reagan during the 1980s.

One of the White House's top economic advisers says that at least those tax reversals will not take effect until 2011, when the economy is expected to be in recovery.

New era

Another thing that could save billions would be a quick troop drawdown in Iraq, which is another campaign promise.

Sceptics warn that just as the last president assumed an easy invasion of Iraq, this one should not count on an easy exit from that fractious and divided country.

The budget for the Pentagon increases by a modest 4% for the fiscal year 2010, to more than $500bn, which includes funding for operations in Iraq and Afghanistan.

Along with a new set of numbers, the president has declared a new era, when budgets will be honest, but he too has attracted the usual criticism of presidential budgets: counting on increased revenues through economic growth, often derisively called a rosy scenario.

But some budget experts say that while the economic growth projections are optimistic, they assume a jump-start effect from the stimulus package that was passed a few weeks ago, and don't differ too much from private economists and the Congressional Budget Office.

That brings us to another bottom line: the president initiates the budget process by putting forward his wish list, but the Constitution gives Congress control of the purse strings.

Democrats control the House of Representatives and the Senate in numbers, but those majorities are slim, and some conservative Democrats could join their Republican colleagues in protesting against "big government spending".

President Obama will have to spend some political capital to get his budget through Congress, and probably have to accept compromises as well.

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