Obama eyes tax hikes, spending cuts to curb deficit

Facing a projected $1.65 trillion budget shortfall this year -- an all-time high -- Obama plans to trim $90 billion from government spending in 2012, while dramatically boosting tax revenues, senior administration officials said.

Addressing widespread public fear that the government is living beyond its means, the administration will vow to cut the deficit by more than one trillion dollars over the next ten years.

The plan includes $400 billion worth of cuts to non-essential programs over the next decade and $78 billion worth of cuts to planned defense spending over five years.

Energy subsidies for the poor would be slashed and public workers\' pay frozen, while a range of programs from community service funding to housing assistance and infrastructure development would lose hundreds of millions of dollars.

It is, according to one senior official, "a responsible plan which shows that we can live within our means and invest in the future. It cuts spending and crucially important it cuts the deficit."

The plan hopes to cut the deficit from whopping 10.9 percent of GDP expected this fiscal year to seven percent in 2012 and down to 4.6 percent in 2013 -- fulfilling Obama\'s promise to half the deficit by the end of his first term in January 2013.

But despite the cost-cutting rhetoric, many of the deficit gains would come from revenue increases, including higher taxes.

Tax cuts for the highest earners would be allowed to expire, while those in the highest bracket would also face a 30 percent drop in allowable tax deductions.

Oil, gas and coal companies would lose 12 tax breaks, raising $46 billion for the government in the next decade.

But the administration is also betting that better economic growth will help swell the government\'s tax coffers.

The administration forecasts that next year receipts will increase by more than 20 percent, or $453 billion compared with this year.

"I don\'t think that we should overlook the importance of the economy growing," one official said. "Because there is more income, there is more income subject to taxation and your revenue goes up."

But in an effort to cut costs without choking the economy\'s recovery or competitiveness, the plan also shifts billions in spending toward the high-tech and green energy sectors and toward help for those out of work.

States would be given more flexibility to pay for unemployment benefits, while $18 billion would be available to improve high speed Internet access, and $8 billion for high-speed railways in the fiscal year starting October 1.

At 2,448 pages and a weight of 10 pounds (4.5 kilograms) the 2012 budget contains something for most members of Congress -- who have to approve it -- but plenty more that will be loathed.

Ahead of the budget\'s publication, Republicans have been outdoing themselves in the promotion of ever-deeper spending cuts and criticizing Obama for not doing enough.

Republicans argue spending cuts will help boost growth, while the Obama administration argues cuts are needed, but should be carefully measured for fear of derailing the recovery.

Bringing the two sides together is likely to be a long process that takes up most of the year before the required congressional approval of the budget.

"It looks like the debt\'s going to continue rising under this budget," House Budget Committee Chairman Paul Ryan told "Fox News Sunday" after Republicans promised $100 billion in cuts to popular programs for the remainder of the current fiscal year.

"Presidents are elected to lead, not to punt. And this president has been punting."

Fears are growing that the inability of the United States to get its budget under control could eventually lead to a debt crisis and a possible default that would plunge the globe into crisis.

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