Obama’s Budget to Focus on Reducing Deficit

The focus of the 2012 budget will be on cutting down the deficit, according to budget director Jacob Lew. The statement was made by the director in a talk aired on CNN. If the budget achieves its targets, U.S.’s deficit will be reduced to the tune of $1.1 trillion over the next 10 years.

Lew also hinted at the strategy that will be followed by President Obama to achieve this ambitious target. He said that strategic spending that will make the U.S. more competitive in the global markets combined with expenditure cut backs in some hand picked areas will provide the solutions.

The statement does not give any specifics about how exactly the $1.1 trillion deficit will be wiped out from the books. Neither does it clarify how the to-be-announced budget will deal with or impact long term deficit.

However, one aspect that is quite clear is that the President is proposing to put a clamp on discretionary spending on non-security related issues. The clamp will last for five years if Obama’s call is indeed heeded. This alone will save $400 billion, a massive chunk of money by all standards. However, this expense head still accounts for only about 10% of the total spending by the Fed.

Critics have been quick to point out that rather than focusing on this relatively small expense area, the government would do better to address items like entitlement programs, where enormous expense is borne year after year.

Defense is another expense head that, critics believe, can and should be pruned. The unfortunate fact, according to these critics, is that neither the Democrats nor Republicans seem to be addressing these expense areas which account for some substantial costs.

Justifying some hard line measures that will be outlined in the budget, Lew admitted that some difficult decisions and ‘tough trade offs’ had to be made. One of these is perhaps the reduction to heating assistance to people who qualify as low income earners. This is one program that has always been favored and promoted by the Democrats.

Education, too, will see its share of cuts. Summer schools grants will take a hit. But, on a parallel track, investments will also be forthcoming to making college education more affordable. Education loans may still become less attractive and more expensive if the proposal to start the interest meters while the students are still in school is accepted.

Whether the changes outlined by Obama in his budget will come into force remains to be seen. But if they do, a saving of $9 billion is in store for the Fed, according to Lew.

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