The Obama administration has released its 2012 budget proposal with an overall price tag of $3.7 trillion. The proposed budget, put together by Office of Management and Budget Director Jack Lew, would attempt to cut the ever-growing deficit and slash or eliminate more than 200 federal programs.

According to official estimates, this proposal would reduce the 10-year budget deficit by $1.1 trillion. Administration officials believe the deficit for this year will be $1.6 trillion, shrinking down to $1.1 trillion in the coming year. The deficit is forecast to shrink down to a low of $600 billion a year by 2018, but it will grow again as more retirees start to receive Social Security and Medicare benefits.

More than half of all federal agencies would receive budget reductions. Almost 40 education programs would be merged into 11 programs and another 13 would be eliminated completely. Cutting, merging or eliminating these programs are part of President Obama's plan to enact a five-year discretionary-spending freeze. If administration figures hold true, non-defense discretionary spending by the decade's end would be at its lowest levels as a percentage of GDP since the Eisenhower administration.

Savings from Cuts, Revenue-Raising Policies

Under the proposal, community action program budgets would be halved, dropping from $700 million to $350 million. Large airports grants would be cut by $1 billion. Funding for infrastructure projects, such as water treatment plants, would drop another $1 billion. Some transportation and defense programs also would see targeted cuts, with defense spending five years from now only rising with inflation. Pell Grants used to pay for college and vocational education would hold at current levels, and in-home heating assistance for poor households would drop $2.5 billion. Among Democrats, this last cut has drawn the most fire, with Senate Majority Leader Harry Reid (D-NV), Senator John Kerry (D-MA) and Representative Edward Markey (D-MA) all voicing opposition.

Approximately a third of the savings identified in the budget would come from new revenue-raising policies. For example, it assumes that the Bush-era tax cuts will expire in 2013. It also includes provisions to raise revenue through additional measures, like limiting itemized tax deductions for households making over $250,000 a year, enacting a new tax on hedge fund managers and charging a $30 billion fee for financial institutions that received TARP funds. Reducing subsidies for oil and gas companies and ending tax breaks for companies doing business abroad would offer additional savings.

The budget does not include a plan to restrain the growth of Medicare, Medicaid and Social Security spending, which makes up the vast majority of the projected budget deficit. Entitlement reforms put forward last year by the president's bipartisan deficit commission are not included in the plan, but Congressional members from both parties are building coalitions to put those recommendations into practice. Although the president intends to enact corporate tax reform by lowering the overall rate while also eliminating loopholes, no such plan was included in this proposal.

Handful of Program Budgets to Increase

A handful of programs, such as education, high-speed rail and research and development, would receive increased funding. R&D dollars would focus on a combination of corporate, medical and energy research and a network that would give 98 percent of Americans high-speed Internet access. These programs fit the "Win the Future" agenda President Obama put forward in his State of the Union address.

Republicans claim the cuts to the budget do not go far enough. Senate Minority Leader Mitch McConnell (R-KY) said, "Americans don't want a spending freeze at unsustainable levels. They want cuts, dramatic cuts." Representative Chris Van Hollen (D-MD), ranking member on the House Budget Committee, said the proposed budget "strikes the right balance, offering tough cuts in a responsible manner." Other Democrats, however, believe the budget focuses too much on cuts while the economy is still recovering.

The priorities of House Republicans differ from those listed in the president's budget, foreshadowing where the fault lines will lie in the coming budget battle. In particular, the GOP would cut funding for many programs that the administration wants to emphasize: high-speed rail, renewable energy and education. The House leadership is scheduled to offer their budget plan for 2012 in April. Once passed, it would be sent to the Senate. If passed in the Senate passes, the budget resolution would immediately become the official 2012 budget because it would not require the president's signature.

The release of the budget proposal comes on the heels of Hill action designed to make the federal government operate more efficiently. A bipartisan group of House members last week put forward the "Federal Program Sunset Commission Act" aimed at merging or eliminating "duplicative, unnecessary or inefficient programs." Representatives Jim Cooper (D-TN), Aaron Schock (R-IL), Mike Quigley (D-IL) and Joe Walsh (R-IL) proposed the legislation.

The Sunset Commission would identify programs to eliminate or merge, and the savings would go directly to the Treasury to pare the deficit. As proposed, the Commission would deliver recommendations to Congress every September 1, and Congress would have six months to renew appropriations for the programs or they would automatically lose funding.