Questions and answers on Obama’s 2012 budget

President Obama formally unveiled his 2012 budget Monday. The plan now must go through Congress, a route made more perilous by maneuvering for the 2012 presidential race. Here is a primer on a topic that will probably dominate political discussion for months:

What did President Obama do?

He released his budget for the fiscal year that begins in October and lasts until the end of September 2012. The budget calls for $3.7 trillion in spending, with a deficit of $1.1 trillion.

How does this compare with the budget for the current year?

Congress and the president are still fighting over this year’s budget, so the numbers remain a bit in flux. But the projected deficit is expected to be about $1.6 trillion.

Shouldn’t Congress have already passed the 2011 budget?

In theory, yes. But this year’s budget has become bogged down in a battle over spending and taxation. The government has been operating under a continuing resolution that allows it to spend money. That authority expires March 4.

What happens if the parties can’t agree on 2011 spending cuts?

If nothing is done, the government would be unable to pay its bills and would be forced to shut down. The federal government was shut down at the end of 1995 because of a budget fight between a Republican-controlled House and a Democratic president, similar to the current configuration. Conservatives want to cut $100 billion in spending in the current year; Republican leaders first offered to cut less but are moving to the larger number, a campaign promise from last year. Democrats have branded many of the proposed cuts as draconian, especially in a weakened economy as the country comes out of the recession.

Complicating the negotiations is that the federal government is approaching its $14.294-trillion borrowing limit. The government normally borrows money to fund deficits and make ends meet while awaiting expected revenue. The limit, expected to be reached in late March, is the maximum amount the government can borrow. Conservatives insist they will not support raising the ceiling unless there are substantial cuts in spending.

If the parties can’t agree on the 2011 budget, what will be the fate of the 2012 budget?

Politically, it is the same players fighting over how much to cut, how much to spend and how to find the money. What is different is the timetable: March 4 is the first deadline to resolve the 2011 budget; then comes raising the debt ceiling, and then the fight over the 2012 budget.

So what is President Obama proposing to deal with these issues?

Obama wants to cut spending by $1.1 trillion over the next decade, a move he has called a down payment on asserting fiscal control. The cuts would mainly hit domestic spending, called discretionary spending. This is different from the structural spending for such big-ticket items as Medicare, Social Security and defense, generally left alone by Democrats and Republicans.

The plan calls for trimming or ending about 200 federal programs and cutting out waste, fraud and corruption. The biggest savings come from a proposed freeze on discretionary spending, estimated to save $400 billion over the decade. But there are also cuts to programs normally favored by Democrats, including the Pell grant program for college students and aid to pay for high energy costs for the poor.

The president has also called for generating more than $1.6 trillion in revenue by ending some tax breaks for the rich and adding some taxes, such as a levy on oil and gas companies. The president would like to increase spending on favored programs, such as education.

Under the president’s proposal, the deficit would decrease in 2012 and continue to drop in subsequent years. To allow comparisons over the different years, deficits are usually computed as a percentage of the U.S. economy. The figure is about 10.9% for this year, but it would fall to 3.2% by 2015. The budget deficit would remain about 3% thereafter, according to the proposal.

Increasing the deficit adds to the total debt. Under the plan, the nation’s debt would continue to rise from 72% of the economy to 77% by 2021.

How do Republicans view the plan?

They say it doesn’t go far enough or fast enough. Republicans argue that the proposed spending cuts are too small to reduce the deficit, and the total debt will actually increase. Nor are Republicans expected to pass the tax increases, many of which the GOP has blocked before.

What is the issue over the structural deficit and why is that important?

Most observers argue that Congress and the president will have to do something about the issues that lead to long-term debt and spending and that involve entitlements, the overwhelming majority of the annual budget. Discretionary spending is about 12% to 15% of the budget, but programs such as Social Security and Medicare are the key to controlling the debt, many have said, including the president’s deficit commission.

Obama did not propose dealing with entitlements in the current budget.

So with Republicans and Democrats at odds over spending and taxation, what happens next?

With an eye on the president’s proposals, various congressional committees begin hearings on their areas of expertise and try to produce budget plans. The respective houses of Congress then get a chance to vote on these proposals, called resolutions.

Depending on the final shape of the resolutions, other committees, which control appropriations, spending and tax policy, will write specific bills that can be turned into laws after passage by both houses and the signature of the president.

michael.muskal@latimes.com