THE BUDGET MESSAGE OF THE PRESIDENT

To the Congress of the United States:

America is emerging from the worst recession in generations. In 2010, an economy that had been
shrinking began to grow again. After nearly 2 years of job losses, America’s businesses added more
than one million jobs. Our capital and credit markets are functioning and strong. Manufacturing is
coming back. And after teetering on the brink of liquidation just 2 years ago, America’s auto industry
is posting healthy gains and returning money to the taxpayers who helped it through a period of
turmoil. The determination and resilience of the American people and the tough choices we made
over the past 2 years helped to pull our economy back from the brink of a second Great Depression.

Two years after those dark days, the stock market is booming. Corporations are posting record
profits. Momentum is building. Yet, in America, we have always had a broader measure of economic
health. We believe in a country where everyone who is willing to work for it has the opportunity to
get ahead; where the small businessperson with a dream or entrepreneur with a great new idea has
their best chance to make them a reality; where any child can go as far as their talent and tenacity
will take them. That is the genius of America. That spirit is what has built the greatest prosperity
the world has ever known.

So even as recovery begins to take hold, we have more work to do to live up to our promise by
repairing the damage this brutal recession has inflicted on our people, generating millions of new
jobs, and seizing the economic opportunities of this competitive, new century.

These must be the priorities as we put together our Budget for the coming year. The fiscal realities
we face require hard choices. A decade of deficits, compounded by the effects of the recession and
the steps we had to take to break it, as well as the chronic failure to confront difficult decisions, has
put us on an unsustainable course. That’s why my Budget lays out a path for how we can pay down
these debts and free the American economy from their burden.

But in an increasingly competitive world in which jobs and businesses are mobile, we also have a
responsibility to invest in those things that are absolutely critical to preparing our people and our
Nation for the economic competition of our time.

We do this by investing in and reforming education and job training so that all Americans have the
skills necessary to compete in the global economy. We do this by encouraging American innovation
and investing in research and development—especially in the job-creating industries of tomorrow
such as clean energy. We do this by rebuilding America’s infrastructure so that U.S. companies can
ship their products and ideas from every corner in America to anywhere in the world. And finally, we
do this by coming together as Americans, not Democrats or Republicans, to make the tough choices
that get America’s fiscal house in order, investing in what works, cutting what doesn’t, and changing
the way business is done in Washington.

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2 THE BUDGET MESSAGE OF THE PRESIDENT

Growing the economy and spurring job creation by America’s businesses, large and small, is my top
priority. That’s why, over the course of the last year, I pushed for additional measures to jump-start
our economic recovery: tax credits for businesses that hire unemployed workers; assistance to States
to prevent the layoffs of teachers; and tax cuts and expanded access to credit for small businesses. At
the end of the year, I signed into law a measure that provided tax cuts for 159 million workers saving
the typical worker $1,000 per year. And the same law extended important tax credits to help families
make ends meet and afford to send their kids to college. This bipartisan tax cut plan also gave
businesses two powerful incentives to invest and create jobs: 100 percent expensing on the purchase
of equipment and an extension of the research and experimentation tax credit.

Moreover, my Administration has moved aggressively to open markets abroad and boost exports
of American made goods and services, signing a new trade agreement with South Korea, the twelfth-
largest economy in the world. And last month, I laid out a balanced approach to regulation that is
pragmatic, driven by data, and that will protect the health and well-being of the American people and
help lay the groundwork for economic growth and job creation.

These steps will help the economy this year. But it is also essential that we take stock and look
to the future—to what kind of America we want to see emerge from this crisis and take shape for
the generations of Americans to come. This Budget lays out our roadmap not just for how we should
invest in our economy next year, but how we should start preparing our Nation to grow, create good
jobs, and compete in the world economy in the years ahead.

At its heart is a recognition that we live in a world fundamentally different than the one of previous
generations. Revolutions in communication and technology have made businesses mobile and
commerce global. Today, a company can set up shop, hire workers, and sell their products wherever
there is an Internet connection. It is a transformation that has touched off a fierce competition among
nations for the jobs and industries of the future.

The winners of this competition will be the countries that have the most skilled and educated
workers; a serious commitment to research and technology; and access to quality infrastructure like
roads and airports, high-speed rail, and high-speed Internet. These are the seeds of economic growth
in the 21st century. Where they are planted, the most jobs and businesses will take root.

In the last century, America’s economic leadership in the world went unchallenged. Now, it is up to
us to make sure that we maintain that leadership in this century. At this moment, the most important
contest we face as a Nation is not between Democrats and Republicans or liberals and conservatives.
It’s between America and our economic competitors around the world.

There is no doubt in my mind that we can win this competition. The United States is home to the
world’s best universities and research facilities, the most brilliant scientists, the brightest minds,
and some of the hardest-working, most entrepreneurial people on Earth. But our leadership is not
guaranteed unless we redouble our efforts in the race for the future.

In a generation, we’ve fallen from first place to ninth place in the proportion of our young people
with college degrees. We lag behind other nations in the quality of our math and science education.
The roads and bridges that connect the corners of our country and made our economy grow by leaps
and bounds after World War II are aging and in need of repair. Our rail and air traffic systems are in
need of modernization, and our mobile networks and high-speed Internet access have not kept pace
with some of our rivals, putting America’s businesses and our people at a competitive disadvantage.
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In 1957, when the Soviet Union beat us into space by launching a satellite called Sputnik, it was
a wake-up call that caused the United States to boost our investment in innovation and education—
particularly in math and science. As a result, we not only surpassed the Soviets, we developed new
American technologies, industries, and jobs. Fifty years later, our generation’s Sputnik moment has
arrived. Our challenge is not building a new satellite, but to rebuild our economy. If the recession
has taught us anything, it is that we cannot go back to an economy driven by too much spending, too
much borrowing, and the paper profits of financial speculation. We must rebuild on a new, stronger
foundation for economic growth. We need to do what America has always been known for: building,
innovating, and educating. We don’t want to be a nation that simply buys and consumes products
from other countries. We want to create and sell products all over the world that are stamped with
three simple words: “Made in America.”

My Budget makes investments that can help America win this competition and transform our
economy, and it does so fully aware of the very difficult fiscal situation we face. When I took the oath
of office 2 years ago, my Administration was left an annual deficit of $1.3 trillion, or 9.2 percent of GDP,
and a projected 10-year deficit of more than $8 trillion. These deficits were the result of a previous 8
years of not paying for programs—notably, two large tax cuts and a new Medicare prescription drug
benefit—as well as the financial crisis and recession that exacerbated our fiscal situation as revenue
decreased and automatic Government outlays increased to counter the recession and cushion its
impact.

We took many steps to re-establish fiscal responsibility, from instituting a statutory pay-as-you-
go rule for spending to going line by line through the budget looking for outdated, ineffective, or
duplicative programs to cut or reform. And, most importantly, we enacted the Affordable Care
Act. Along with giving Americans more affordable choices and freedom from insurance company
abuses, reform of our health care system will, according to the latest analysis by the non-partisan
Congressional Budget Office, reduce our budget deficits by more than $200 billion in its first decade
and more than $1 trillion over the second.

Now that the threat of a depression has passed, and economic growth is beginning to take hold,
taking further steps toward reducing our long-term deficit has to be a priority, and it is in this Budget.
The reason is simple: in the long run, we will not be able to compete with countries like China if we
keep borrowing more and more from countries like China. That’s why in this Budget, I put forward a
number of steps to put us on a fiscally sustainable path.

First, I am proposing a 5-year freeze on all discretionary spending outside of security. This is not
an across-the-board cut, but rather an overall freeze with investments in areas critical for long-term
economic growth and job creation. A commonsense approach where we cut what doesn’t work and
invest in those things that make America stronger and our people more prosperous. Over a decade,
this freeze will save more than $400 billion, cut non-security funding to the lowest share of the
economy since at least 1962, and put the discretionary budget on a sustainable trajectory.

Making these spending cuts will require tough choices and sacrifices. One of them is the 2-year
freeze on Federal civilian worker salaries. This is in no way a reflection on the dedicated service of
Federal workers, but rather a necessary belt-tightening measure during these difficult times when so
many private sector workers are facing similar cuts. This Budget also includes many terminations
and reductions to programs across the entire Federal Government. These cuts include many
programs whose mission I care deeply about, but meeting our fiscal targets while investing in our
future demands no less. All told, we have put forward more than 200 terminations and reductions for
over $30 billion in savings.
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Even in areas outside the freeze, we are looking for ways to save money and cut unnecessary costs.
At the Department of Defense, for instance, we are reducing its funding by $78 billion over the next 5
years on a course for zero real growth in funding. To do this, Secretary Gates is pursuing a package of
terminations, consolidations, and efficiencies that include, for example, the elimination of the Marine
Corps Expeditionary Fighting Vehicle; the consolidation of four Air Force air operations centers into
two; and reducing the number of Generals and Admirals by more than 100. And throughout the entire
Government, we are continuing our efforts to make Government programs and services work better
and cost less: using competition and high standards to get the most from the grants we award, getting
rid of excess Federal real estate, and saving billions of dollars by cutting overhead and administrative
costs.

Second, I continue to oppose the permanent extension of the 2001 and 2003 tax cuts for families
making more than $250,000 a year and a more generous estate tax benefiting only the very largest
estates. While I had to accept these measures for 2 more years as a part of a compromise that
prevented a large tax increase on middle-class families and secured crucial job-creating support for
our economy, these policies were unfair and unaffordable when enacted and remain so today. I will
push for their expiration in 2012. Moreover, for too long we have tolerated a tax system that’s a
complex, inefficient, and loophole-riddled mess. For instance, year after year we go deeper into deficit
and debt to pay to prevent the Alternative Minimum Tax (AMT) from hurting many middle-class
families. As a start, my Budget proposes a 3-year fix to the AMT that is paid for by an across-the-
board 30 percent reduction in itemized deductions for high-income taxpayers. My Administration will
work with the Congress on a long-term offset for these costs.

Third, to address looming, long-term challenges to our fiscal health, the Budget addresses future
liabilities in the unemployment insurance system; the Pension Benefit Guaranty Corporation, which
protects the pensions of workers whose companies have failed; and the Federal Housing Administration,
which plays a critical role in affordable housing. It also is committed to implementing the Affordable
Care Act swiftly and efficiently since rising health care costs are the single biggest driver of our
long-term fiscal problems. Finally, as a down payment toward a permanent fix, the Budget proposes
additional reforms to our health care system that would be sufficient to pay for 2 years of fixing the
Medicare’s sustainable growth rate, thus preventing a large cut in Medicare reimbursements for
doctors that would jeopardize care for older Americans.

In addition, I believe that we need to act now to secure and strengthen Social Security for future
generations. Social Security is a solemn commitment to America’s seniors that we must preserve.
That is why I have laid out my principles for reform and look forward to working with the Congress
on ensuring Social Security’s compact for future generations.

As we move to rein in our deficits, we must do so in a way that does not cut back on those investments
that have the biggest impact on our economic growth because the best antidote to a growing deficit
is a growing economy. So even as we pursue cuts and savings in the months ahead, we must fund
those investments that will help America win the race for the jobs and industries of the future—
investments in education, innovation, and infrastructure.

In an era where most new jobs will require some kind of higher education, we have to keep investing
in the skills of our workers and the education of our children. And that’s why we are on our way to
meeting the goal I set when I took office: by 2020, America will once again have the highest proportion
of college graduates in the world.
THE BUDGET FOR FISCAL YEAR 2012 5

To get there, we are making college more affordable for millions of students, through the extension
of the American Opportunity Tax Cut and maintaining our historic expansion of the Pell Grant
program while putting it on firm financial footing. We are taking large steps toward my goal of
preparing 100,000 science, technology, engineering, and mathematics teachers over the next decade.
And we are continuing our reform of elementary and secondary education—not from the top-down,
but from the bottom-up. Instead of indiscriminately pouring money into a system that doesn’t always
work, we are challenging schools and States to compete in a “Race to the Top” to see who can come up
with reforms that raise standards, recruit and retain good teachers, and raise student achievement,
especially in math and science. We are expanding the “Race to the Top” to school districts, and since in
today’s economy learning must last a lifetime, we are extending this competitive framework to early
childhood education, universities and colleges, and job training.

Once our students graduate with the skills they need for the jobs of the future, we also need to
make sure those jobs end up in America. In today’s high-tech, global economy, that means the United
States must be the best place to do business and the best place to innovate. That will take reforming
our tax code, and I am calling for immediate action to rid the corporate tax code of special interest
loopholes and to lower the corporate rate to restore competitiveness and encourage job creation—
while not adding a dime to the deficit.

And since many companies do not invest in basic research that does not have an immediate pay
off, we—as a Nation—must devote our resources to these fundamental areas of scientific inquiry.
In this Budget, we are increasing our investment in research and development that contributes to
fields as varied as biomedicine, cyber-security, nano-technology, and advanced manufacturing. We
are eliminating subsidies to fossil fuels and instead making a significant investment in clean energy
technology—boosting our investment in this high-growth field by a third—because the country that
leads in clean energy will lead in the global economy. Through a range of programs and tax incentives,
this Budget supports my goals of the United States becoming the first country to have one million
electric vehicles on the road by 2015 and for us to reach a point by 2035 where 80 percent of our
electricity will come from clean energy sources. We also are working toward a 20 percent decrease in
energy usage in commercial and institutional buildings by 2020, complementing our ongoing efforts
to improving the efficiency of the residential sector. If this is truly our Sputnik moment, we need a
commitment to innovation that we have not seen since President Kennedy challenged us to go to the
moon.

To flourish in the global economy, we need a world-class infrastructure—the roads, rails, runways,
and information superhighways that are fundamental to commerce. Over the last 2 years, our
investments in infrastructure projects already have led to hundreds of thousands of good private
sector jobs and begun upgrading our infrastructure across the country. But we still have a long way
to go.

In this Budget, I am proposing a historic investment in repairing, rebuilding, and modernizing

our transportation infrastructure. The Budget features an immediate, up-front investment of $50
billion to both generate jobs now and lay a foundation for future economic growth. Looking toward
the future, the Budget provides funds to develop and dramatically expand access to high-speed rail
as well as the creation of a National Infrastructure Bank to support projects critical to our national
competitiveness. While this transportation bill is a major investment of funds, it is also a major
reform of how transportation funds have been invested in the past. We are committing to paying
for our surface transportation plan and making it subject to the Congress’ pay-as-you-go law; to
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consolidating duplicative, earmarked programs; and to making tens of billions of dollars of funds
subject to a competitive “Race to the Top” process.

And looking to what we will need to thrive in the 21st century, I am proposing an ambitious effort
to speed the development of a cutting-edge, high-speed wireless data network that will reach across
our country to 98 percent of Americans and provide for the needs of both our citizens and our first
responders. We are the Nation that built the transcontinental railroad and the first airplanes to take
flight. We constructed a massive interstate highway system and introduced the Internet to the world.
America has always been built to compete, and if we want to attract the best jobs and businesses to
our shores, we have to be that Nation again.

Finally, to make it easier for our businesses and workers to sell their products all over the globe,
we are working toward our goal of doubling U.S. exports by 2014. This will take specific efforts to
open up markets and promote American goods and services. It also will take maintaining American
leadership abroad and ensuring our security at home. This Budget invests in all elements of our
national power—including our military—to achieve our goals of winding down the war in Iraq;
defeating al Qaeda in Afghanistan and around the world; reducing the threat of nuclear weapons;
and preparing our Nation for emerging threats. We also invest resources to provide for our men and
women in uniform and to honor the service of our veterans. And we do this all with an eye to cutting
waste, finding efficiencies, and focusing resources on what is essential to our security.

Throughout our history, the investments this Budget makes—in education, innovation, and
infrastructure—have commanded support from both Democrats and Republicans. It was Abraham
Lincoln who launched the transcontinental railroad and opened the National Academy of Sciences;
Dwight Eisenhower who helped build our highways; and Republican Members of Congress who worked
with Franklin Roosevelt to pass the GI Bill. In our own time, leaders from both sides of the aisle have
come together to invest in our infrastructure, create incentives for research and development, and
support education reform such as those my Administration has been pursuing. Moreover, when faced
with tough, fiscal challenges, our country’s leaders have come together to find a way forward to save
Social Security in the 1980s and balance the budget in the 1990s.

There are no inherent ideological differences that should prevent Democrats and Republicans from
making our economy more competitive with the rest of the world. We are all Americans, and we are
all in this race together. So those of us who work in Washington have a choice to make in this coming
year: we can focus on what is necessary for each party to win the news cycle or the next election, or
we can focus on what is necessary for America to win the future.

I believe we must do what this moment demands, and do what we must to spur job creation and
make the United States competitive in the world economy. For as difficult as the times may be, the
good news is that we know what the future could look like for the United States. We can see it in the
classrooms that are experimenting with groundbreaking reforms and giving children new math and
science skills at an early age. We can see it in the wind farms and advanced battery factories that are
opening across America. We can see it in the laboratories and research facilities all over this country
that are churning out discoveries and turning them into new startups and new jobs.
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And when you meet these children and their teachers, these scientists and technicians, and these
entrepreneurs and their employees, you come away knowing that despite all we have been through
these past 2 years, we will succeed. The idea of America is alive and well. As long as there are people
willing to dream, willing to work hard, and willing to look past the disagreements of the moment
to focus on the future we share, I have no doubt that this will be remembered as another American
century.

Barack Obama
The White House,
February 14, 2011.