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$100 billion increase in deficit is forecast

WASHINGTON — The additional tax cuts and public works spending that President Barack Obama has proposed to spur job creation would add $100 billion to this year's deficit, bringing it to nearly $1.6 trillion, according to an administration official.

A deficit of that size for the fiscal year ending Sept. 30 would be about $150 billion greater than last year's deficit, the highest since World War II.

Measured against the size of the economy, a $1.6 trillion shortfall would equal almost 11 percent of gross domestic product. Economists generally consider annual deficits above 3 percent to be unsustainable.

Last week, the nonpartisan Congressional Budget Office projected that this year's deficit would be more than $1.3 trillion without further spending or tax cuts.

The administration's projection of its deficit for this year came as Obama prepared to release Monday his budget for the 2011 fiscal year, which begins Oct. 1, and for the remainder of the decade.

The president's shift from stimulus spending to deficit reduction in his new budget for the 2011 to 2020 fiscal years assumes that the economy will have fully recovered from the worst recession in eight decades.

It will rely on projections of higher tax collections from revived businesses and workers, and less spending for unemployment compensation and other safety-net programs for those out of work.

Budgets for 2011 and beyond also would save hundreds of billions of dollars by letting the Bush-era tax cuts for households that have annual incomes above $250,000 expire this year as scheduled. Obama's proposed tax on big banks, intended to recoup any losses from the financial bailout program, would collect at least $90 billion over a decade.

An additional $250 billion would be saved by freezing for three years the overall spending for a portion of the domestic budget, and by holding that spending to the rate of inflation in subsequent years — a level of austerity that has no modern precedent in Washington. Medicare, Medicaid and Social Security — the so-called entitlement programs that are the largest and fastest-growing part of the budget — would be exempted, along with defense and veterans programs.

Obama's budget for the coming fiscal year would total $3.8 trillion. Just $1.4 trillion is domestic and military spending that he and Congress directly control through annual appropriations; the rest is mostly automatic spending for Medicare, Medicaid and Social Security and interest on debt of $12.4 trillion.