Obama unveils $3.8tn budget

President Barack Obama today will send to the US Congress a budget with a record $1.6tn (£1tn) deficit, as he boosts spending on job creation, his healthcare overhaul and defence while ending Bush-era tax cuts for wealthy Americans.

The budget deficit is the largest ever in dollars, and at 10.6% of US gross domestic product it is the largest proportionally since 1945, when the the war-time US ran a budget deficit of 21.4% of the economy.

The budget for the financial year beginning on 1 October, totals $3.8tn and includes billions to fight the wars in Iraq and Afghanistan and $100bn aimed at job creation measures, including tax cuts for small business and incentives to hire new workers. It includes a 6% increasing in education funding and eliminates what Obama calls wasteful subsidies for banks that lend to students.

It includes aid to states and cities and social safety net programmes and would impose new fees on the nation's largest banks. Projects slated for large cuts include the Nasa space programme that was slated to replace the Space Shuttle.

"We must do what families across the country are doing," Obama said at the White House today, "save where we can so we can spend where we need."

The budget will allow some major tax cuts to expire, including those for families earning more than $250,000 per year passed under George Bush, a tax cut Obama faults for much of the current budget mess. The plan would include tax hikes for well-heeled Americans, which may prove political unfeasible in an election year.

While the budget raises defence spending overall, Obama pledged to cut military programmes not requested by the Pentagon but sought after by congressmen seeking money for the districts.

The president has come under heavy political pressure to curb budget deficits, and recently proposed a three-year discretionary spending freeze to take effect next year when analysts assume the economy will have largely recovered. The budget deficit is in large part due to huge spending on fiscal stimulus measures. Yet Obama has also made it his primary task to lower unemployment, currently stalled at 10%.

Today the president renewed his call for a commission charged with making what he describes as the tough choices to bring the budget into line. The idea had in the past been supported by both Republicans and Democrats but was rejected last week in the Senate.

According to budget estimates released to reporters, the deficit would decline to $778bn, or 37% of the US economy, by 2017. The improvement is driven by assumptions the US economy will grow at a rapid clip over the next six years.