$1.1 trillion cuts and taxes plan as US battles to balance books

It projects the deficit for the current year will surge to an all-time high of $1.65 trillion.

It reflects a sizeable tax-cut agreement reached with Republicans in December.

For 2012, the administration sees the imbalance declining to $1.1 trillion, giving the country a record four straight years of $1 trillion-plus deficits.

Mr Obama says his spending plan will cut federal spending as a percentage of gross domestic product to its lowest level since Eisenhower was president in the 1950s.

The budget issue, always contentious, is more so in this spending cycle with the arrival of new Republicans backed by the low-tax, small-government Tea Party movement in the House of Representatives.

Republicans retook control of the House after November elections on the promise of slashing government spending.

Senior administration officials said Mr Obama would achieve two-thirds of his projected savings through spending cuts that include a five-year freeze on many domestic programmes.

The other one-third of the savings would come from tax increases, including limits on tax deductions for high-income taxpayers.

But even before the budget was revealed Republicans were complaining it did not go far enough. They branded Mr Obama’s solutions as far too timid for a country facing unprecedented debts.

“We’re broke,” House Speaker John Boehner said on Sunday as he defended a Republican effort not only to squeeze more savings out of Mr Obama’s budget but also to seek $61bn in cuts for this budget year.

House Republicans, many of whom were elected on an anti-deficit pledge, forced their own leaders to nearly double the savings they will seek in the seven months left in the 2011 budget year. Congress has been unable to pass a budget for the year, and the government has been operating on a stopgap spending bill that expires on March 11.

Jacob Lew, the president’s budget director, refused to say what size cuts for 2011 would be acceptable to the administration and stressed a desire to find a compromise that would avoid a government shutdown, something that last occurred during a protracted budget battle between Congress and the Clinton administration.

In addition to cutting deficits, Mr Obama’s new budget would increase spending in selected areas such as education, infrastructure spending and research and development.

Republicans have called these proposals non-starters, saying the government cannot afford spending increases and should only be debating how much to cut.

They have also challenged Mr Obama’s five-year freeze on many domestic programmes, saying that the president wants to freeze spending at 2010 levels. They are pushing to take spending back to 2008 levels.

Mr Obama had already promised to freeze the funding of agencies that oversee domestic programmes at 2010 levels and freeze federal salaries.

The biggest tax hike in the budget would come from a proposal to trim the deductions the wealthiest Americans can claim for charitable contributions, mortgage interest and state and local tax payments.

Sceptics question Mr Obama’s income forecasts that depend on measures such as eliminating tens of billions of dollars in tax breaks for oil companies – which have little chance of being passed by Republicans.