5:45 PM New York – President Obama proposed $3.8 billion of budget which includes $2.4 trillion of entitlements expenses and $1.4 trillion of domestic and defense expenses. The proposed budget also assumes slower than long term average economic growth in the next ten years, near 10% unemployment in 2010.

President Obama proposed a $3.8 trillion budget for fiscal 2011 with a project deficit of $1.6 trillion and added taxes of $800 billion over the next ten years. The surge is defense spending in the last five years is hampering flexibility in providing additional stimulus for domestic programs.

The budget takes into account higher than average unemployment for the next two years, slower than average economic growth and lower inflation forecast.

President focused on programs that create new jobs, trim the budget deficit and balance the needs of the domestic economy and the cost of two wars.

Though the budget calls for $3.8 billion in spending nearly $2.4 billion is for the entitlement programs and interest payment on $12.4 trillion of debt. President Obama and Congress can only control $1.4 billion of appropriations for domestic and defense programs.

The 10-year budget relies on higher tax revenues and higher economic growth and less jobless benefits and other social security programs.

The White House estimates economic growth of 3% in 2011 and 4.25% in the next two years.

In the current fiscal year ending in Sept 30, the budget deficit is estimated to surge to $1.6 trillion on higher jobless benefits and higher subsidies to state governments of $25.5 billion for Medicaid health programs for the poor.

President Obama’s plan calls for deficit reduction in the next fiscal year to $1.3 trillion and then decline to $727 billion in 2013 and $704 billion in 2014.

The deficit is expected to total $1 over the next ten years

The lower deficit in the next four years is predicated on the economy recovering, higher tax receipts and waning of stimulus spending. However, unemployment rate in the current year is expected to stay near 10% and decline to 9.2% in 2011 and 8.2% in 2012.

The White House projection of high unemployment only highlights the jobless recovery that is expected in the next three years.

The estimate also calls for the yields on the 10-year Treasury notes to peak at 5.3% in 2014 and stay there till 2020. Inflation expectations for the decade ending in 2020 are mild.

Consumer price index is expected to increase to 1.9% in 2010 and then to 2% in 2012 and stay at 2.1% for the rest of the decade.

The White House projects deficit to stay below $800 billion between fiscal years 2015 and 2018 and then rise again on the rising healthcare expenses as population age.

The White House estimates real economic growth in 2010 of 3% and annual rate of 4.5% in the period between 2011 and 2013.

The share of corporate profit before taxes in 2009 is expected to decline to 9.9% from the peak of 13.9% in 2006. The proposed budget estimates that the profit share will rebound to 12.5% in 2011 and then fall to 9% for the rest of the decade.

President Obama’s plan relies on spending cuts and higher taxes on people who earn more than $250,000 a year. Though the plan does not impose new taxes on rich tax payers it simply let the tax relief provided by the Bush administration to expire. For all the other tax earners, President’s plan calls for Congress to extend the tax cuts indefinitely.

Of the $678 billion in new taxes, a proposed new tax on banks over the next ten years will raise $90 billion and $40 billion by closing the tax breaks available to oil and gas companies. Spending freeze on domestic programs is expected to save $250 billion.

The proposed budget will not touch the fastest growing line items, the entitlement programs that include Medicare, Medicaid and Social Security.