Source: WSJ

President Barack Obama will propose on Monday a $3.8 trillion budget for fiscal 2011 that projects the deficit will shoot up to a record $1.6 trillion this year, but would push the red ink down to about $700 billion, or 4% of the gross domestic product, by 2013, according to congressional aides.

The deficit for the current fiscal year, which ends on Sept. 30, would eclipse last year's $1.4 trillion deficit, in part due to new spending on a proposed jobs package. The president also wants $25 billion for cash-strapped state governments, mainly to offset their funding of the Medicaid health program for the poor.

To get the deficit down by the middle of the decade, Mr. Obama will be relying on cuts that have previously been proposed without success, on cooperation from a wary Congress and on a yet-to-be set up debt commission to suggest politically difficult choices.

At the same time, Mr. Obama is under pressure to address the country's continued high unemployment rate. And he will propose increases in spending for priorities such as education and domestic scientific research. All of this raises questions about how much progress the president is likely to make in trying to fulfill his pledge to half by 2013 the $1.3 trillion deficit he inherited.

The budget embodies Mr. Obama's larger predicament of needing to contain the deficit without harming the economy, which remains fragile. The deficit has become a major political issue, as antigovernment activists swing independents against what they describe as Mr. Obama's big-government policies and Republicans try to regain the mantle of fiscal responsibility after the Bush years saw surpluses swing to deficits.

Republicans have said they aren't likely to cooperate with Mr. Obama on his deficit-reduction approach, opposing tax increases even as they attack Democrats for proposing cuts to Medicare. Meanwhile, senior Democrats in Congress have shown themselves reluctant to cut spending with unemployment hovering at 10%.

Under the Obama budget, this year's $1.6 trillion deficit would fall to $1.3 trillion in the fiscal year that begins Oct. 1. It would drop to $700 billion in 2013 and 2014, the budget projects, on the assumption that the economy recovers, tax receipts start rising again with incomes, and stimulus spending drops off.

The deficit would drop to the equivalent of 5% of GDP in 2013 through expected economic improvement alone. Policy changes proposed by the president, such as a proposed freeze in nonsecurity domestic spending, would shave an additional percentage point.

Mr. Obama plans to rely on a new debt commission to come up with recommendations on how to meet his promise to bring the figure down to the equivalent of 3% of GDP by 2015, according to budget analysts briefed on the proposal.

The deficit is forecast to stabilize at $800 billion between fiscal years 2015 and 2018 before beginning to rise again, according to the White House projections. The projected rise is due to the retirement of the baby boomers, which is expected to result in increased spending on Medicare and Social Security.

With unemployment still at 10%, the president is finding it difficult to meet his promise to half the $1.3 trillion deficit he inherited by January 2013. Job creation has become his top priority, and he is showing no sign of skimping on tax cuts and spending measures in the short term.

A bipartisan 18-member debt commission would forward any deficit-reduction proposals they come up with to Congress after this year's midterm elections. Issues it would face would include how to cut the deficit further in the short term and how to rein in long-term growth of entitlement programs, such as Medicare, Medicaid and Social Security. Commission members would have to come up with between $180 billion and $190 billion in cuts to meet the president's target.

Congressional leaders have promised the president that they would submit the panel's recommendations to an up-or-down vote in the lame-duck session of Congress, after the elections but before the newly elected House and Senate take office.

White House officials say they are ready to make some tough choices to get the deficit under control. White House communications director Dan Pfeiffer wrote on the White House Web site this weekend that the president's budget would propose to terminate or cut back more than 120 programs, saving about $20 billion in the fiscal year beginning in October.

The proposals include consolidating 38 education programs into 11, cutting the National Park Service's Save America's Treasures and Preserve America grant program, and eliminating the Advanced Earned Income Tax Credit, which allows low-wage workers to get tax-credit checks in advance but which is rife with abuse, White House officials say. The Brownfields Economic Development Initiative, which converts decayed former industrial sites to new uses, would be cut, and payments ended to states to restore abandoned mines, many of which have been long cleaned up.

But some of those efforts, such as the abandoned mines and Advanced Earned Income Credit cuts, were proposed last year in Mr. Obama's first budget. They were ignored by Congress. Other planned cuts are presidential perennials, attempted without success by Presidents Bill Clinton and George W. Bush before Mr. Obama, such as eliminating whaling partnerships and implementing deep cuts to the Army Corps of Engineers.

The president is also expected to call for halting the National Aeronautics and Space Administration's plan to return astronauts to the moon, a tough sell in vote-rich Florida.

"There's no question there's a range of domestic discretionary that can be scaled back," said one Democratic budget analyst. "Politically, they will never get through."

Meantime, the president will ask for large increases in spending on education and civilian scientific research, according to analysts who have been briefed on the budget plans.

Mainly, the president plans to rely on the budget commission and budget rules in an effort to try to force Congress's hand. The budget assumes the enactment of pay-as-you-go rules that would force any tax cut or spending increase to be offset by tax hikes or spending cuts.

Isabel Sawhill, a budget expert at the Brookings Institution, criticized the president's goal— a deficit of 3% of GDP long after the recession has ended—saying it amounted to "defining deficits down."

"The pay-go rules will make it more difficult for Congress to dig the hole deeper but won't affect currently projected red ink; and the commission will likely be a paper tiger," she wrote on Friday. "In short, these proposals will still leave us with unsustainable deficits as far as the eye can see. It is depressing to discover that we can no longer even aspire to balance the budget once the recession is over."

Write to Jonathan Weisman at jonathan.weisman@wsj.com