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Obama's 2013 budget a campaign call to arms

Obama speaks about government reform in Washington
Obama speaks about government reform in Washington

By Alister Bull

WASHINGTON (Reuters) - When President Barack Obama unveils his annual budget next month, the blueprint will reveal a lot about his re-election strategy but probably little about the spending and tax policies the Congress will adopt in the coming year.

Obama's budget for the 2013 fiscal year will be declared "dead on arrival" in a gridlocked Congress, where lawmakers who control the U.S. purse strings are focused squarely on their own campaigns and the contest for the White House in November 2012.

House of Representatives Republicans, who spent much of last year locked in combat with Obama over fiscal policy, are relishing the budget's release - expected in early February - as another chance to skewer the president as a big spender and the architect of bloated U.S. deficits and a soaring national debt.

On the campaign trail, Mitt Romney, the front-runner in the race to become the Republican presidential nominee who will challenge Obama in the November 6 election, has said it is not "moral" for the United States to keep spending more than it is taking in and has called for a balanced budget.

The last time the United States balanced its budget was under Democrat Bill Clinton, who presided over a booming economy in the 1990s and left office in 2001 with a $128 billion surplus. Democrats lambaste his successor, George W. Bush, for plunging the country into deficit through costly wars in Afghanistan and Iraq and huge tax cuts.

As both sides wrestle for control of the narrative over who is to blame for the huge deficits and how best to slash them, the White House will likely use the budget to try to gain advantage over Republicans in the debate.

'MORE OF A CAMPAIGN DOCUMENT'

Analysts expect Obama to renew his call for an end to the Bush-era tax cuts for wealthier Americans that are due to expire in December. That will be a red flag for Republicans, who say higher taxes - even on the rich - will stifle economic growth.

"What the president will be providing in his budget will be more of a campaign document than it will be a real budget," said

Stan Collender, a former congressional budget aide who is now a partner at Qorvis Communications.

Republican resistance to Obama's budget may play right into a new White House strategy to highlight the "obstructionism" of an unpopular Congress.

The thinking goes that Republican rejection of the budget would help Obama harden his credentials as a fighter for the middle class while enabling him to paint his opponents as the party of the rich.

"The president's budget will reflect his values of making sure that the wealthiest pay their fair share," a White House official told Reuters. The official declined to give specifics of the budget proposal.

The administration is expected to use the budget to try to cast Obama as a leader willing to tackle the nation's fiscal woes by reviving his long-term deficit-cutting plan, which he first proposed to a congressional panel last September.

The administration describes it as a "go-big" plan to tame spiraling debt, but critics say it is thin on specifics.

The plan, which went nowhere after the deficit-reduction talks collapsed, would cut $4 trillion over 10 years, with higher taxes on the wealthy offsetting near-term stimulus spending.

"This is a proposal that is out there, that continues to be part of a package of proposals that the president would like to see implemented," White House spokesman Josh Earnest said.

The White House wants to blunt Republican attacks that the U.S. national debt under Obama has swollen by $5 trillion, to a total of $15 trillion, an issue opinion polls consistently show is a major worry for voters and could hurt Obama's chances of re-election.

HUGE DEFICIT WORRIES VOTERS

The government's trillion dollar-plus budget deficit was the second most important issue for voters in the New Hampshire Republican primaries last week, polls showed.

"The budget, debt is probably the main thing for me. I think the country is going in the wrong direction. I think we spend too much money," said mortgage banker Brian Johnson, 57.

America's national debt is now roughly equal to the size of its economy, a symbolic milestone that the National Republican Congressional Committee, which focuses on House Republican election campaigns, noted had been reached on Obama's watch.

The White House argues that Obama inherited a deficit on track to exceed $1 trillion, and was forced to spend hundreds of billions of dollars to stimulate the economy to avoid the worst recession since the 1930s becoming another Great Depression.

The campaign rhetoric surrounding the release of Obama's budget proposal will just be background noise for investors, who want to see how the administration plans to achieve $1 trillion in spending cuts to domestic and defense programs that the White House and Republicans agreed to last year as part of deal to raise the country's debt limit.

A further $1.2 trillion in automatic spending cuts are due to take effect from January 2013 unless Congress comes up with a plan for long-term deficit reduction. But the White House does not plan to give specifics on how it would implement the potential across-the-board cuts.

Analysts said the administration probably viewed it as smart politics to avoid doing so.

"In an election year Obama will have great motivation to keep those cuts as abstract and unclear as possible," said Ron Haskins, a budget expert at the Washington-based Brookings Institution.

In short, the expected swift death of Obama's budget proposal means Congress is highly unlikely to craft a comprehensive spending plan to keep government agencies operating beyond October 2012.

"The most likely outcome is that we will go into the election under a continuing resolution," said Joe Minarik, a former White House chief economist under Clinton, referring to a stop-gap spending measure that keeps the U.S. government funded only temporarily.

(Additional reporting by Caren Bohan, Tim Reid, Laura MacInnis and Richard Cowan; Editing by Ross Colvin and Peter Cooney)

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