WASHINGTON (CN) – President Obama unveiled his $3.8 trillion budget Monday for fiscal year 2011. Despite a spending freeze and new pay-as-you-go legislation, it’s expected to produce a $1.3 trillion deficit in 2011 – the same deficit that had been projected for 2010.
Obama and Congress control just $1.4 trillion of the 2011 budget. The rest of the $3.8 billion budget is driven by automatic spending for entitlement programs.
The projected deficit for fiscal year 2011, which starts in October, would represent more than 8 percent of the economy.
Obama has signaled that he will focus on reducing the deficits after this year, but a year without a deficit is still beyond the horizon.
He plans to close that gap by letting tax cuts expire for those making more than $250,000 a year. His administration says $250 billion would be saved by freezing portions of domestic spending for three years, then allowing the funds to increase in step with the rate of inflation.
War spending and veterans programs are exempt from the cuts, as are entitlement programs such as Medicare, Medicaid and Social Security.
Congress recently passed pay-as-you-go legislation, which would require lawmakers to find a way to pay for new legislation. Medicare, Medicaid and Social Security would not be affected by this new law.
The budget comes shortly after Obama proposed tax cuts on small businesses in an effort to spur job growth, which would contribute $100 billion to this year’s projected deficit. The tax cuts, in conjunction with proposed spending increases, would boost this year’s deficit to $1.6 trillion – the highest since World War II.
The 2010 deficit would be about 11 percent of the economy.