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Obama Administration Rolls Out $3.5 Trillion Budget Plan

February 26, 2009 at 6:00 PM EDT
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President Obama's $3.5 trillion federal budget plan for the fiscal year includes both record spending and deficits for a wide range of programs, including health care, education and bank rescues. Kwame Holman reports.

JUDY WOODRUFF: President Obama laid out the highlights of his first budget proposal today for Congress and the nation. It was a plan replete with record spending and deficits and huge numbers for everything from health care to bank rescues.

Kwame Holman has our lead story report.

KWAME HOLMAN: Budget Director Peter Orszag personally delivered the 134-page outline to Congress’s budget chairmen this morning on the Capitol Plaza.

SEN. KENT CONRAD (D), North Dakota: This is it.

KWAME HOLMAN: “It” was a $3.5 trillion blueprint for government spending, the largest ever. And it projected by far the largest deficit ever, at $1.75 trillion, more than four times the red ink for this year.

President Obama acknowledged the grim numbers in his rollout announcement.

BARACK OBAMA, President of the United States: In keeping with my commitment to make our government more open and transparent, this budget is an honest accounting of where we are and where we intend to go.

KWAME HOLMAN: As a result, the deficit would top 12 percent of the nation’s gross domestic product. It’s the largest, in terms of GDP, since World War II, driven by the costs of the financial rescue package and the economic stimulus plan.

Another major chunk of the spending — $634 billion — would go for a down payment on universal health care.

BARACK OBAMA: Because of crushing health care costs and the fact that they drag down our economy, bankrupt our families, and represent the fastest-growing part of our budget, we must make it a priority to give every single American quality, affordable health care.

Budget reduces war spending

KWAME HOLMAN: More help for the financial industry also is in the budget, in the form of another $250 billion for bank rescues. Ultimately, the total cost of that effort could be more than double the $700 billion already approved.

The president said he's included for the first time the actual costs of fighting in Iraq and Afghanistan. The Bush administration relied heavily on off-budget supplemental funding.

BARACK OBAMA: For too long, our budget has not told the whole truth about how precious tax dollars are spent. Large sums have been left off the books, including the true cost of fighting in Iraq and Afghanistan.

KWAME HOLMAN: For this year, the cost is expected to be $130 billion; that's in addition to more than $500 billion in overall military outlays.

But even with all the spending, the president set a goal of cutting the deficit in half within four years.

BARACK OBAMA: Just as a family has to make hard choices about where to spend and where to save, so do we as a government. There are times where you can afford to redecorate your house, and there are times where you need to focus on rebuilding its foundation.

KWAME HOLMAN: To do that, the administration has targeted $2 trillion of cuts over 10 years. About three-quarters would come from gradually reduced spending on the wars. In addition, Medicare payments to insurance companies and hospitals would be cut, along with agricultural payments to some of the largest farmers.

At his own briefing, White House Budget Director Orszag addressed the need for cuts.

PETER ORSZAG, White House Budget Director: We are on an unsustainable fiscal course. There's not a single line in the budget that won't have someone who cares about it very strongly. And yet if we allowed those -- all of those lines to persist and grow over time, we would wind up with a fiscal crisis.

Criticisms of spending increases

KWAME HOLMAN: Change on the tax side would mean letting the Bush administration tax cuts for the wealthiest Americans expire at the end of 2010. And there's projected revenue from a new source: the plan for a market-based cap-and-trade system for selling permits on greenhouse gas emissions.

BARACK OBAMA: These must be the priorities reflected in our budget, for in the end a budget is more than simply numbers on a page. It is a measure of how well we are living up to our obligations to ourselves and one another. It is a test for our commitment to making America what it was always meant to be: a place where all things are possible for all people.

KWAME HOLMAN: As always, the budget's view of what's possible was based on economic forecasts. The chair of the Council of Economic Advisers, Christina Romer.

CHRISTINA ROMER, Head of President Obama's Council of Economic Advisers: We are projecting year-over-year GDP growth of minus 1.2 percent in 2009. Like most other forecasters, we anticipate that real GDP will fall significantly in the first quarter of this year. We expect it to bottom out sometime around midyear 2009 and begin growing again by the end of the year.

KWAME HOLMAN: The budget outline was widely anticipated on Capitol Hill, and the huge numbers in the plan provoked reactions that were swift and sharply divided.

House Republican Leader John Boehner condemned it.

REP. JOHN BOEHNER (R-OH), House Minority Leader: The era of big government is back, and Democrats are asking you to pay for it. The administration's plan, I think, is a job-killer, plain and simple. And it raises taxes on all Americans while we're in the middle of a recession.

KWAME HOLMAN: But House Speaker Nancy Pelosi said the president has to clean up a mess that Republicans created.

REP. NANCY PELOSI (D-CA), Speaker of the House: This is a budget about a new era of responsibility. This is about accountability, fiscal discipline, cutting waste, fraud and abuse, removing things like Medicare Advantage, which are a disadvantage to the American taxpayer.

Mixed reaction on the Hill

KWAME HOLMAN: Some moderate Democrats, such as Tennessee's Jim Cooper, voiced concerns about the budget's size, but he also gave the president credit.

Do these numbers scare you?

REP. JIM COOPER (D), Tennessee: They do scare me, but I'm glad that the president's new budget is the most honest budget we've seen in a long, long time.

Now, honest also means ugly. And a lot of Americans aren't used to politicians telling the truth. So, in the choice between make-up or no make-up, I go for the natural look.

KWAME HOLMAN: But Texas Republican Jeb Hensarling contended the outline had far more serious problems.

REP. JEB HENSARLING (R), Texas: The budget should have been printed in red ink instead of black ink. You know, American families are hurting. They're having to tighten their belt. The least Washington could do is level-fund the government from one year to the next. There's no history of a nation borrowing and spending its way into prosperity.

More detailed budget to come

KWAME HOLMAN: On the Senate side, the top leaders on the Budget Committee also weighed in. New Hampshire Republican Judd Gregg said the president made no real effort to tackle the rising costs of Social Security and Medicare.

SEN. JUDD GREGG (R), New Hampshire: Until we address this looming financial tsunami -- and I'm sorry to keep using the term, but that's what it is -- which is going to wipe out our children's chances of having a successful future, we aren't going to be able to say that we're going to be able to stabilize the federal government as a portion of the economy.

KWAME HOLMAN: Democrat Kent Conrad of North Dakota agreed on the need for reforming the entitlement system, but said spending cuts alone won't do it.

SEN. KENT CONRAD (D), North Dakota: We've got to address the revenue base. My own belief is the revenue system of the country has got to be fundamentally reformed. It's just out of date. It was largely written 40 and 50 years ago, and it no longer deals with the world we live in today.

KWAME HOLMAN: The president plans to release the more detailed budget by mid- to late-April. The new fiscal year begins October 1st.