Where is the budget money coming from?

President Barack Obama has proposed a $3.541 trillion budget that ups the ante on a series of massive spending plans he said are necessary to revive the economy, but that critics charge are mortgaging the country’s future.

The federal spending plan arrives on the heels of a $2 trillion financial services bailout, Obama’s $788 billion stimulus package, the $13.4 billion preliminary bailout for automakers, a $410 billion spending plan to cover the rest of the current fiscal year, and a proposed $275 billion foreclosure rescue plan. And it includes a $634 billion fund for health care.

“We need to be honest with ourselves about what costs are being racked up, because that’s how we’ll come to grips with the hard choices that lie ahead,” Obama said.

But critics say the wave of spending is avoiding hard choices and shifting an enormous financial burden onto future generations.
“I think we just ought to admit it. We’re broke, and we can’t continue to pile debt on the backs of our kids and grandkids,” said House Minority Leader Rep. John Boehner.

To pay for the spending, Obama’s budget relies on revenue from raising taxes on the wealthy, eliminating tax breaks for business, cutting defense spending, and a new program charging companies for exceeding emissions caps.

Obama’s tax plan includes allowing former President George W. Bush’s tax cuts for wealthier Americans to expire — a move affecting more than 2 million taxpayers making over $200,000 a year. In addition, Obama calls for increasing the top tax rate from 35 percent to 40 percent. His advisers said that would generate about $1 trillion over 10 years. The budget also calls for increasing the capital gains tax from 15 percent to 20 percent.

Another significant new source of revenue for the administration would come from a proposed “cap and trade” program, forcing polluters to pay a fee for their carbon emissions. Obama’s budget plan anticipates collecting more than $645 billion from power companies, manufacturers and other carbon producers by 2019.

The president also calls for ending tax breaks on the oil and gas industry, which also would face an increase in fees. Overall, changes for the industry are expected to produce $5.3 billion by 2019, and underscore the administration’s shift toward encouraging alternative energy.

Farm subsidies also face cuts in the Obama budget, which proposes phasing out payments to farms making more than $500,000 a year. The elimination of the agribusiness aid would save about $645 billion over a decade.

Obama is calling for cutting annual spending on Iraq and Afghanistan to $130 billion in the fiscal year starting Oct. 1, 2009. The cost of the running the wars was $180 billion last year.

In all, the White House is banking on $2.4 trillion in revenue next year to fund priorities that include shifting toward universal health care, green energy, new education initiatives and tax cuts for middle class wage earners.

Critics forecast that massive new taxes would be required to pay for those new initiatives.

“He’s going to have to start moving down the scale and raising taxes on people making $150,000, people making $100,000 and even people making $75,000,”  economist Adam Lerrick, a scholar at the conservative American Enterprise Institute, told Fox News. “You have to increase taxes. It’s very simple. You have to pay for this somehow.”  

Obama’s larger strategy depends on exorbitant government expenditures fueling a national economic turnaround. And his long-term budget is based on assumptions the economy will rebound significantly by 2011.

Built into Obama’s spending plan is a forecast that the nation’s gross domestic product will shrink by 1.2 percent this year before rebounding to 3.2 percent in 2010 and 4.0 in 2011.

The administration’s GDP assumptions far exceed those of the Congressional Budget Office and some economists, who predict growth of between 1.5 percent and 2.1 percent in 2010. Christina Romer, Obama’s chief economic adviser, defended the rosy budget forecast.

“We certainly are somewhat more optimistic, but certainly nothing out of the ballpark,” Romer said at a White House budget briefing. “It was an honest forecast that working with the professional forecasters throughout the administration and looking at the policies we were putting in place, these were the numbers that came out, and we feel very confident that they’re appropriate.”

The assumptions are central to Obama’s aim to cut the deficit, now estimated at $1.75 trillion, in half by 2012.