Obama budget to ignite deficit debate

President Barack Obama’s 2012 budget plan will bring a simmering deficit debate to a head when he sends it to Congress on Monday, but the United States is still far from tackling its huge fiscal gap as bond markets watch anxiously.

With the deficit expected to widen in 2011 and 2012 — due largely to the December extension of George W. Bush-era tax cuts — there is a risk of a damaging stand-off between Republicans and Obama’s Democrats that produces little concrete action on the deficit.

Election wins in November by Republicans backed by the conservative Tea Party movement have brought new members to the House of Representatives who campaigned aggressively for slashed spending and smaller government.

Republicans control the House and Democrats have a majority in the Senate, which makes harder the process of finding a compromise on the budget proposal of Democrat Obama.

The top Republican, House Speaker John Boehner, already was attacking the White House budget effort. “We’re concerned he’ll send Congress a budget that destroys jobs because it spends too much, taxes too much and borrows too much,” Boehner told reporters on Thursday.

The current political landscape “reminds me an awful lot of winter of 1995-’96,” said William Hoagland, a budget expert who used to advise Republican senators. Back then, the government endured partial shutdowns after a Democratic White House and a Republican-led House could not settle their budget disputes.

The White House sees the budget as a starting point for the debate on spending and reducing the deficit, forecast to reach $1.48 trillion this fiscal year, or 9.8 percent of U.S. GDP. This would be down from 10.0 percent of GDP in 2010, but still very high for the United States on a historical basis.