Barack Obama has proposed slashing the country’s budget deficit by $1,100bn over the next decade in the most restrained economic and fiscal policy agenda laid out by the White House since the US president took office two years ago.

With the economic recovery gaining traction and a debate over fiscal credibility dominating US politics, the administration’s budget proposal would “ask Washington to live within its means, while at the same time investing in our future,” Mr Obama said.

Administration officials said ahead of the budget’s release on Monday that two-thirds of the deficit reduction would come from lower spending, including a five-year freeze on programmes unrelated to national security and defence that would save $400bn through 2021.

The rest of the savings would come from tax increases, including a proposal already floated by Mr Obama to limit the ability of wealthy Americans to deduct items such as mortgage interest and charitable donations from their taxes.

An administration official said that by 2015 “the government will be paying for what it spends and debt will no longer be increasing as a share of GDP”.

Despite the pivot towards greater rectitude, the proposals for the 2012 fiscal year, which begins in October, fall significantly short of a grand plan to tackle America’s long-term debt outlook.

Government pensions and healthcare which account for the bulk of the escalating spending projections are largely left untouched in the budget.

For instance, a bipartisan commission appointed by Mr Obama last year found that some $3,900bn in deficit reduction – more than three times more aggressive than the administration’s proposals – would be needed through 2020 to steady the country’s fiscal ship and avert a debt crisis.

In figures to be released with the budget, the administration estimates the fiscal shortfall in 2011 will be $1,645bn, the largest ever annual deficit.

Still, Obama administration officials say they are on track to achieving a key fiscal goal: a primary balance, excluding interest on the debt, by 2015, with a budget deficit just above 3 per cent of gross domestic product.

The administration maintains they have taken difficult decision and painful decisions, with half of all agencies having “their top line” cut from 2010-enacted levels.

The White House been seeking to balance the need for fiscal austerity with plans to make a series of new investments – and government spending – in certain areas such as infrastructure, education and clean energy, designed to bolster American competitiveness.

A framework for corporate tax reform that would lower rates for US businesses while eliminating some of their tax breaks, was also expected to be part of Monday’s proposals.

John Boehner, Republican speaker of the House of Representatives, attacked Mr Obama’s looming budget, saying it “spends too much, borrows too much and taxes too much”.

In an interview with NBC television, Mr Boehner said: “The president talks about winning the future. This isn’t winning the future, this is spending the future.”

Republicans are proposing much more aggressive spending cuts than Mr Obama, starting with up to $100bn in cuts in the current fiscal year. Republicans have yet to lay out their budget for 2012.

After the release of Mr Obama’s budget, the White House and congressional leaders will have two and a half weeks to set aside their differences on fiscal policy and negotiate an extension of funding for the government, which expires on March 4.

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