Obama to set out painful budget plans for austerity in America

(GETTY)

Americans are about to get a first glimpse of what tight-fisted federal government looks like with President Barack Obama releasing an austerity-tinged draft budget this morning even as Republicans move to push through a short-term spending plan featuring a far more radical range of spending cuts.

The arrival of Mr Obama's 2012 budget blueprint in Congress will be the starting pistol for a fight over federal spending that might just lead to a ground-breaking pact by both parties on getting US spending habits under control. The White House is also seeking an agreement on raising the debt ceiling.

More likely, however, the debate will degenerate quickly into warfare, with Republicans seeking to outbid each other on who is more serious about tackling deficits, and Democrats battling to defend social programmes close to their hearts. The end result could be legislative gridlock and perhaps even a government shutdown.

The Obama draft will tread a line between offending Democrats, with some of their favourite domestic programmes singled out for cuts, while going far enough to convince moderate Republicans he is serious about budget discipline. Officials say it will deliver on a promise made in the State of the Union Address to begin a five-year-freeze on non-defence domestic spending.

"After a decade of rising deficits, this budget asks Washington to live within its means, while at the same time investing in our future," President Obama said in his weekly radio address on Saturday. "It cuts what we can't afford to pay for what we cannot do without."

Yet yesterday the Republican chairman of the House Budget Committee, Paul Ryan, excoriated Mr Obama for not going far enough in his plan. "It looks like the debt's going to continue rising under this budget," he said. "Presidents are elected to lead, not to punt. This president has been punting."

More urgent than the 2012 budget are steps that must be taken to set spending levels for the rest of this fiscal year, ending in October. The Republican majority in the House of Representatives will this week try to pass a resolution to cut $60bn (£37.5bn) from government spending over seven months. Translating to annual cuts of $100bn or more, it reflects the demands of conservatives sent to Congress by the Tea Party.

The Republican proposals will meet opposition in the Senate, where Democrats still have a slim majority. But were it to pass Congress in its current form, it would inflict instant pain on a huge range of programmes. Low income students would see grants for university fees slashed, for instance, the education and environmental protection departments would have their budgets scythed, and Mr Obama would see his plans for investment in innovation, clean energy and high-speed trains eviscerated. The agency that oversees public broadcasting the US – a favourite target of conservatives – would simply be shut.

"Next week, we are going to cut more than $100 billion. And we're not going to stop there," said the House Speaker John Boehner, who dare not take anything less than a hatchet to spending levels for fear of triggering a mutiny from the right wing of his party. "Once we cut the discretionary accounts, then we'll get into the mandatory spending. And then you'll see more cuts."

There is also the parallel challenge of dealing with the country's debt, which is now brushing against its maximum legal ceiling of just over $14 trillion. To ensure that government can keep functioning – and keep paying the existing debt – it must get permission from Congress to increase that ceiling, preferably before April.

Bumping up the ceiling should happen almost automatically. But this time, conservative Republicans intend to use the request to squeeze the White House on a broader deficit-cutting strategy.

Behind all of this lies the debate – with which Britain is entirely familiar – over the relative needs of cutting spending and reducing government debt while not smothering economic recovery.

"Anything considered draconian is going to appeal to a certain crowd that's out there saying we've got to cut our way out of the problem," commented Ben Nelson, a key moderate Democrat in the Senate. "But for most of us, if you cut the wrong things, then you impair your ability to grow your way out."