Obama to reduce budget deficit to $533 bn by 2013

He inherited a $1.3 trillion deficit that equals 9.2% of GDP.

President Barack Obama plans to cut the US budget deficit to $533 billion by the end of his first term by increasing taxes on the wealthy and cutting spending for the war in Iraq, according to an administration official.

Obama wants to reduce the deficit because he’s concerned that over time, federal borrowing will make it harder for the US economy to grow and create jobs, said the official, speaking on the condition of anonymity. The deficit Obama inherited on taking office last month was $1.3 trillion. The administration next week is to release an overview of its budget proposal for the 2010 fiscal year, which begins October 1.

“Next week sets the table for the year,” and the president’s four-year term, Kenneth Baer, spokesman for the White House budget office, said on Saturday, referring to the budget plan that will be released on February 26.

To increase revenue, Obama will propose taxing the investment income of hedge-fund and private-equity partners at ordinary tax rates, which are now as high as 35 per cent and may rise to 39.6 per cent under the administration’s plan, the New York Times reported on Monday. They are currently taxed at the capital-gains rate of as much as 15 per cent.

Obama promised during the campaign that he would slash federal programmes that weren’t working. “The president has said he can’t kick the can down the road anymore,” Baer said.

The $1.3 trillion deficit Obama inherited equals 9.2 per cent of gross domestic product, said the administration official. The administration’s budget proposal cuts the deficit to 3 per cent of GDP by 2013, at the end of Obama’s first term.

Iraq War
Most of the savings will be realised from winding down the war in Iraq as well as increased revenue from Americans making more than $250,000 a year, said the official. The Times said Obama will propose letting President George W Bush’s tax cuts for the wealthy lapse in 2010.

Earlier on Sunday, Obama talked about the importance of reining in the ballooning federal deficit in his weekly address.

He will hold a so-called fiscal-responsibility summit at the White House on February 23, with about 130 people invited to attend, including about 50 members of the House and Senate from both parties, according to Baer.

Obama said the Treasury Department will begin ordering employers today to cut taxes taken from workers’ paychecks as part of his effort to pull the economy out of a recession.

The president said a “typical” family will start getting at least an extra $65 a month by April 1 as a result of the $787 billion stimulus package he signed into law this week. He said the measure is only a “first step.”

The president has also pledged $275 billion to help struggling homeowners avoid foreclosure and plans to announce measures to stabilise banks. Companies from General Motors Corp to Alcoa Inc are slashing jobs and cutting production as the recession threatens to become the worst slump in the postwar era.