Obama readies new budget plan

WASHINGTON (MarketWatch) � President Barack Obama on Monday will formally submit his fiscal 2013 budget plan to Congress and it is likely to look more like a blueprint for the re-election campaign rather than a serious budget proposal, analysts said.

�In a sense, every budget is a political document, but this one will be much more so,� said Stan Collender, a budget expert with Qorvis Communications LLC.

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�It is an election year, the president is in a tough race and he will be presenting it to a hostile Congress,� he said.

Obama�s proposal will be based on a $3 trillion deficit-cutting plan he offered to Congress in September.

He is likely to flesh out details of the theme of the State of the Union themes of economic fairness, said Chris Krueger, analyst with Washington Research Group.

Obama could introduce the House Republican budget proposal from last year and he would still be criticized, Collender said.

Republicans have blasted Obama for wasteful government spending that has increased the national debt and not brought down the high unemployment rate significantly. The jobless rate was 8.3% in January, according to Labor Department data.

Washington has come to a standstill on the budget after members of a congressional super committee failed to reach agreement on finding $1.2 trillion in deficit reduction over the next 10 years.

As a result, automatic spending cuts are expected to kick at the end of 2012. At the same time, Bush-era tax cuts are set to expire.

Federal Reserve Board Chairman Ben Bernanke warned Congress last week that these factors would result in a sharp short-term reduction in the deficit that would damage the recovery.

But analysts don�t expect any progress on this looming budget crunch until after the November election.

Steven Stanley, chief economist at Pierpont Securities, described the fiscal situation as someone who calls a cab because he desperately needs a ride but is not ready to leave yet. So the cab is sitting in front of the house with the meter running.

�We have to cool our heels for almost a year to see any progress on the fiscal front, and, in the meantime, debt will continue to accumulate at an alarming pace,� Stanley said.

Investors are showing an �amazing willingness� of investors to buy seemingly endless amounts of Treasury paper at negative real yields, he noted.

The federal deficit totaled $1.3 trillion in fiscal 2011. The Congressional Budget Office last month projected that the federal deficit would decline to $1.1 trillion in fiscal 2012.

Obama will project a deficit of $1.33 trillion in fiscal 2012, falling to $901 billion in fiscal 2013, according to news reports.

Collender said it looks like the administration is going to be very conservative in their deficit estimates. This is a familiar tactic and will allow the administration to report more positive information if the deficit comes in better-than-forecast later this year

Obama�s budget will reflect caps on discretionary spending that will reduce the deficit by about $1 trillion over a decade. Discretionary spending refers to programs whose spending levels are set each year by Congress.

Exports believe that Obama will include several previous proposals opposed by the financial industry, including a bank tax. Obama will also propose to close several tax loopholes including carried interest.

�While the headlines may put some pressure on parts of the financial services sector, we recommend that investors take a deep breath and then ignore the proposals,� said Brian Gardner, analyst at Keefe, Bruyette & Woods.

Last September, Obama proposed a fee on financial firms with more than $50 billion in assets to raise $30 billion to cover taxpayer losses on the government�s bailout of banks.