Video: Obama: Tax cuts will be felt by April 1

updated 2/21/2009 6:06:08 PM ET 2009-02-21T23:06:08

Barack Obama wants to cut the federal deficit in half by the end of his first term, mostly by scaling back Iraq war spending, raising taxes on the wealthiest and streamlining government, an administration official said Saturday as the president worked to finalize his first budget request.

Obama's proposal for the 2010 fiscal year that begins Oct. 1 projects that the estimated $1.3 trillion deficit he has inherited from former President George W. Bush will be halved to $533 billion by 2013.

"We can't generate sustained growth without getting our deficits under control," Obama said in a weekly radio and Internet address that seemed to preview his intentions. He said his budget will be "sober in its assessments, honest in its accounting, and lays out in detail my strategy for investing in what we need, cutting what we don't, and restoring fiscal discipline."

He's expected to outline some broad themes of his budget request Monday at a White House summit on fiscal policy and touch on it during his first speech to Congress on Tuesday evening. He is slated to officially send at least a summary of it to Congress on Thursday, barely a week after he signed into law the $787 billion stimulus measure .

Obama's budget also is expected to take steps toward his campaign promises of establishing universal health care and lessening the country's reliance on foreign oil.

Core campaign promises
The official, who spoke on the condition of anonymity because the president has not yet released his budget, said Obama hopes to achieve his deficit-reduction goal by generating savings as he follows through on three core campaign promises over the next four years.

He has pledged to wind down the Iraq war by withdrawing most combat troops within 16 months of taking office. He also has said he would let the temporary Bush tax cuts expire in 2011 for people making more than $250,000 a year, effectively raising taxes on those people. And, he has vowed to scale back spending and improve government efficiency by eliminating programs that don't work.

In the weekly address, Obama mapped out an ambitious agenda to pull the U.S. out of its worst economic crisis since the Great Depression of the 1930s. He said the country also must stem home foreclosures, repair the banking system, get credit flowing again, and revamp financial industry regulations.

Obama has staked his presidency on turning around the quickly slumping U.S. economy, but the bad news has continued even after he signed the massive stimulus package into law on Tuesday.

On Friday, the Obama administration addressed two of the biggest challenges of the U.S. economic crisis, warning that American auto companies need major restructuring and reassuring Wall Street that he does not plan to nationalize two of the country's ailing banks.

Trying to save the banks
Investors have shown decreasing confidence that U.S. banks can right themselves. Citigroup and Bank of America have already received significant help from taxpayers as the government has rushed in to try to save the financial sector, which has been choked by bad assets and seen the flow of credit shrink.

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Video: Obama: ‘Lives will be saved’ On Wall Street, talk of nationalization of Citigroup Inc., and Bank of America Corp., prompted investors to continue to balk, worried that the government would have to take control and wipe out shareholders in the process. Citigroup fell 20 percent, while Bank of America fell 12 percent in afternoon trading but also came off their lowest levels.

"This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government," White House press secretary Robert Gibbs said Friday when asked about nationalizing the banks.

In his speech Saturday, Obama said Americans will start reaping the benefits of the tax cuts in the stimulus package by April 1.

"Never before in our history has a tax cut taken effect faster or gone to so many hardworking Americans," Obama said.

The president said his signature two-year "Making Work Pay" tax break will affect 95 percent of working families, and, in six weeks' time, a typical family will start taking home at least $65 more every month.

Phasing out the credit
The credit is phased out for higher-income taxpayers, defined as individuals who have a modified adjusted gross income of between $75,000 and $95,000, and married couples filing jointly who make between $150,000 and $190,000.

In concert with Obama's announcement, the Treasury Department on Saturday began directing employers to reduce the amount of taxes withheld from people's paychecks in accordance with the new law as soon as possible and not later than April 1.

Obama's expensive and ambitious package of federal spending and tax cuts is designed to revive the economy and save or create 3.5 million or more jobs. It will inject a sudden boost of cash into transportation, education, energy and health care, while aiming to help recession victims through tax cuts, extended unemployment benefits and short-term health insurance assistance. It also will add to a rapidly growing national debt.

The nonpartisan Congressional Budget Office says that this year's budget deficit will be at least a record $1.2 trillion — about two times that of the year before. That total includes financial bailouts and rescue plans Congress approved since last Oct. 1, the start of the government's budget year, but not Obama's hefty stimulus package that's now law.

Some private economists are forecasting that the budget deficit for the current year will hit $1.6 trillion. And, the Treasury Department has said that the recession and massive costs for the $700 billion financial bailout have pushed the federal deficit to an all-time high for the first four months of the budget year.

Obama's budget director, Peter Orszag, told lawmakers recently that even after the economy recovers, annual deficits could reach $750 billion or so and steadily exceed $1 trillion by the end of the next decade. And, Obama himself has said, without decisive action, "trillion-dollar deficits will be a reality for years to come."

In the Republicans' weekly address, Rep. Dave Camp, the top Republican on the House Ways and Means Committee, said his party wants to work with Obama to solve the country's economic problems "in a responsible way that does not burden our children and grandchildren with a mountain of debt."

"We can't borrow and spend our way back to prosperity," Camp said. "If he is serious about dealing with the tough issues and getting spending under control, his budget will show it."

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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