WASHINGTON: President Barack Obama's $3.8 trillion fiscal 2011 budget puts an emphasis on job creation with $100 billion in additional stimulus spending, along with higher taxes for the wealthy in an attempt to narrow the deficit.

The spending blueprint forecasts this year's budget shortfall will hit a record $1.6 trillion, following a $1.4 trillion deficit in 2009. The 2011 deficit is predicted to be $1.3 trillion, with deficits remaining above $700 billion for the rest of the decade, according to the projections.

The president spelled out plans to offset spending by more than $1.2 trillion over 10 years, partly through a freeze on many domestic programs and by imposing more than $800 billion in higher taxes and fees on households earning more than $250,000, on banks that benefited from the financial industry bailout and by repealing tax breaks for the oil, gas and coal industries.

The budget "reflects the serious challenges facing the country," Obama said in remarks at the White House. 'We're at war, our economy has lost 7 million jobs over the last two years, and our government is deeply in debt after what can only be described as a decade of profligacy."

The budget plan for the fiscal year that begins Oct. 1 -- which amounts to spending of $7.3 million a minute -- reflects the administration's struggle to boost the economy and job growth while tightening the government's belt to reduce deficits in the years ahead.

Political Impact

The economy is a top concern of voters, and the budget will be taken up by Congress for approval or modification as lawmakers turn attention to elections in November that will decide control of the House and Senate.

"We're in territory that's essentially uncharted waters," James Poterba, president of the National Bureau of Economic Research, said in a Bloomberg Radio interview. He cited the growth of spending for the government's Medicare, Medicaid and Social Security programs, and the shortage of tax revenue combined with rising interest payments.

"The long-term prospects in U.S. fiscal policy is rather daunting," said Poterba, who also is an economics professor at the Massachusetts Institute of Technology in Cambridge, Massachusetts.

Obama's 2011 budget is equal to 25.1% of gross domestic product, according to administration figures. By comparison, spending under President Ronald Reagan in fiscal 1983 was $808 billion, representing 23.5% of the GDP, historical tables in the budget document show. Reagan submitted that budget at the same point in his presidency as Obama and amid a recession.

Gross Domestic Product

In his message to Congress included with the budget, Obama called job creation "an urgent priority," with the national unemployment rate expected to average 10% through this year.

A fragile recovery and continued joblessness mean the administration can't take more immediate aggressive steps to trim the deficit, Peter Orszag, director of the White House Office of Management and Budget, said in a briefing. Cutting too much too soon might stifle the economic recovery, he said.

"We're trying to accomplish a soft landing in terms of our fiscal trajectory," he said.

Outlook for Economy

An economic outlook released by the White House shows the U.S. economy will grow 2.7% this year and 3.8% next year. The unemployment rate will average 10% in 2010, declining to 9.2% next year, suggesting the administration expects employers will be slow to add workers. The jobless rate won't dip below 6% until 2015, the forecast showed.

Inflation is forecast to be 1.9% this year, declining to 1.5% next year.

Lawmakers signaled they are gearing up to push their own ideas about shrinking the deficit.

House Republican Leader John Boehner of Ohio dismissed the budget as "more reckless spending and more unsustainable debt." He said that while the spending freeze was "a good first step," it requires "more than a few cuts here and there at the margins."

House Appropriations Committee Chairman David Obey, a Wisconsin Democrat, said today lawmakers will abide by the administration's spending freeze and may cut further, including the defense budget that Obama wants to exempt.

Wider Cuts Promised

"We will also not exempt any department or activity from review, including foreign aid and the Pentagon because none of them are without waste," Obey said.

The deficit forecast for the current year represents 10.6% of the U.S. gross domestic product, making it the biggest by that measure since World War II, according to administration figures. The White House goal has been to reduce the deficit to about 3% of GDP, which most economists say is sustainable. The budget, though, predicts it'll average 4.5% over 10 years.

"The projections that were made at the beginning of last year didn't reflect how deep the economic downturn was," Orszag said in a Bloomberg Television interview.

The administration wants to impose a three-year freeze in "discretionary" spending outside of defense and security. The freeze won't be across-the-board. Some programs, such as education and research and development, would get as much as 6% budget increases. Nine federal departments, including Agriculture, Commerce and Health and Human Services, would see their budgets shrink.

Debt Commission

Obama's plan also calls for creating a special debt commission to recommend steps to cut the deficit and tougher budgeting rules in Congress.

The result would be a deficit that declines next year to $1.27 trillion and to $828 billion in 2012, according to a summary provided by the administration. In subsequent years, through 2020, the annual deficit would still total between $700 billion and $1 trillion. By 2020, the publicly held debt would approximately double to $18.5 trillion, according to estimates.

Interest costs on the federal debt, reflecting the surge in spending for wars, tax cuts and the impact of the recession, will quadruple to more than $800 billion by 2020, budget figures showed.

More Stimulus

The plan calls for extending several elements of last year's economic stimulus as part of either a new jobs package or through subsequent legislation. It proposes spending $61 billion to extend for one year the administration's "Making Work Pay" tax credit, which provided $400 to individuals and $800 to couples. It is set to expire this year.

Obama proposes to make permanent the Build America Bonds program, in which the federal government subsidizes infrastructure projects by picking up part of the tab for interest costs from taxable bonds issued by local governments. It calls for reducing that subsidy to 28% from 35%. The budget would also spend $25 billion to provide state governments with six additional months of help paying their Medicaid bills.

The bulk of the higher taxes would come by allowing tax cuts passed under former President George W. Bush for couples earning more than $250,000 and individuals with more than $200,000 in annual income to lapse at the end of this year. That would raise $678 billion, according to the administration.

Top tax rates would increase to 36% and 39.6%, from the current 33% and 35%. The tax on capital gains and dividends would rise to 20% from 15% now, beginning Jan. 1, and there would be limits on the wealthy taking itemized deductions.

Bank Fees

A fee imposed on 50 of the biggest financial firms such as JPMorgan Chase & Co. and Bank of America Corp. would raise another $90 billion. Eliminating tax breaks for fossil-fuel industries would produce another $40 billion.

The administration also proposes raising $24 billion by increasing taxes on income earned by private equity and venture capital firms.

Freezing some domestic programs for three years and then holding them at the rate of inflation for the rest of the next decade would save $250 billion, the administration estimates.

That would represent an abrupt shift in priorities. Non- defense discretionary spending is projected to grow this year by 7% not including the costs of last year's stimulus package, according to the CBO.

Program Terminations

The increase totals 17% once the stimulus package is included, according to CBO estimates. The administration's plan also calls for 120 program terminations, reductions and other moves it estimates would save $20 billion.

The plan would provide $33 billion in "emergency" funding this year to help pay for the administration's troop buildup in Afghanistan. Next year, war costs would amount to $159.3 billion. The basic defense budget would amount to $549 billion, a 3.4 increase from this year.

The Department of Homeland Security would get a 2% increase, veterans programs would get a 7% budget increase and the State Department and other international programs would see an 8% hike.

The budget has more than doubled from $1.9 trillion in 2001, according the OMB's historical data.