Obama's $3.8 Trillion Budget: War and School Spending Up, Bush Tax Cuts Out

President Obama sent his $3.834 trillion budget proposal to Congress on Monday morning, complete with a record-breaking deficit; increased defense, education and entitlement spending; tax increases for wealthy families; and a three-year spending freeze on non-defense discretionary spending.

Entitlement programs and interest payments on the existing $12.4 trillion national debt account for two-thirds, or $2.39 trillion, of the budget, with Medicare, Social Security and veterans' programs increasing at federally mandated levels.

The rest of the budget is heavy on defense and homeland security spending, as well as continued economic infusions designed to jump-start job creation. It also makes good on Obama's promises as a presidential candidate to allow the Bush tax cuts, which were only temporary when passed by Congress, to expire for families making more than $250,000 per year.

The budget deficit hits an all-time high this year at $1.67 trillion, or 11 percent of GDP. By next year, the administration projects the deficit will decrease to $1.2 trillion, which is just over 8 percent of GDP. Both numbers are down from this year's deficit, which ballooned as tax receipts fell and the government stepped in to rescue failing American businesses and spend $787 billion to stimulate the economy.

As he unveiled his budget at the White House Monday, the president described "a decade of profligacy" that preceded his administration, reminding Americans that he had inherited, not created, the economic crisis and sky-rocketing national deficits that the country faced in 2009.

"Over the course of the past 10 years, the previous administration and previous Congresses created an expensive new drug program, passed massive tax cuts for the wealthy, and funded two wars without paying for any of it -– all of which was compounded by recession and by rising health care costs." he said. "As a result, when I first walked through the door, the deficit stood at $1.3 trillion, with projected deficits of $8 trillion over the next decade."

The president said that he is committed to cutting the deficit, but that the remedy will sometimes be painful. "We have to do what families across America are doing: Save where we can so that we can afford what we need."

The president's proposal today is only the beginning of the budget process, as the House and Senate will negotiate federal appropriations bills that may not reflect the president's priorities and often exceed presidential spending recommendations.

Below are the highlights of Obama's proposed budget for 2011:

Increased Spending For:

* Fighting the wars in Iraq and Afghanistan, with $160 billion requested beyond the Pentagon's annual budget, which now tops $700 billion;

* Homeland security gets a 2 percent increase, along with $700 billion requested for airport security screening equipment;

* Creating jobs, with $100 billion for job-related stimulus and $33 billion in tax cuts for small business hiring;

* Education: The president asked for a $3 billion increase for K-12 education, the largest rise ever, along with $1.33 billion for his "Race to the Top" grant program, and a $17 billion increase for Pell grants for higher education;

* Research and development for clean energy technology, which will be increased by 6 percent or $3 billion.

Budget Cuts:

* The president proposed a three-year spending freeze, excluding defense, homeland security, job creation and education, for $250 billion in savings over 10 years;

* The White House says it will eliminate wasteful or unnecessary federal programs for $20 billion in savings.

Tax Cuts and Increases:

* Obama recommends allowing the 2001 and 2003 Bush tax cuts to expire at the end of the year for families making $250,000 or more, generating $678 billion in revenue;

* He'll eliminate tax breaks for traditional energy companies, including oil and gas, for $40 billion;

* Continue the "making work pay" tax credit for 110 million middle-class families, which credits $400 to individuals and $800 for families at tax time;

* $90 billion in fees on large financial institutions;

Congressional Budget Office Director Doug Elmendorf testified last week that the long-term federal budget outlook is "daunting," primarily because their is no plan to increase revenue or adjust entitlement spending, as more and more Americans receive Medicare and Social Security benefits.

Last week, the Senate voted against a commission that would have recommended ways to balance the federal budget and address the national debt. Congress also voted last week to increase the ceiling on the debt to just over $14 trillion.

The president has committed to creating a similar commission to the one proposed in Congress, but has not given specific details on how it would work, who would sit on the panel, or whether its proposals would be binding.

On Monday, the president concluded his remarks on the budget with a stark assessment of the federal budget and its impact on the nation's economic outlook. "The bottom line is this," he said. "We simply cannot continue to spend as if deficits don't have consequences; as if waste doesn't matter; as if the hard-earned tax dollars of the American people can be treated like Monopoly money; as if we can ignore this challenge for another generation. We can't."