U.s. President Barack Obama, flanked by Budget Director Peter Orszag, right, and Treasury Secretary Tim Geithner, talks about his proposed 2010 federal budget on Thursday in Washington. (Charles Dharapak/Associated Press)

U.S. President Barack Obama unveiled a $3.55 trillion US fiscal plan that will hike taxes on the wealthy, revamp Medicare and saddle the country with a massive deficit.

As part of the effort to pull the United States out of a crippling recession, the administration proposes boosting the deficit by an additional $250 billion US this year. That would enable the $750 billion US in increased spending under the government's rescue program for banks and other financial institutions. The increased spending more than doubles the $700 billion bank bailout passed by Congress last October.

Obama predicts a whopping $1.75-trillion deficit in the current budget year, a figure 50 times the size of Canada's deficit.

Obama's fiscal plan will also ask Congress to raise taxes on the wealthy in 2011 and cut Medicare costs to provide health care for the uninsured. Private insurance plans serving Medicare seniors would take the biggest hit.

Obama said the cuts are needed to kick-start an effort to cover all uninsured Americans.

"We must make it a priority to give every single American quality, affordable health care," Obama told a press conference ahead of presenting his plan to Congress.

"Having inherited a trillion-dollar deficit that will take a long time for us to close, we need to focus on what we need to move the economy forward, not on what's nice to have," he said. "There are some hard choices that lie ahead."

Obama said Thursday he will slash spending by $2 trillion.

"We have targeted almost $50 billion in savings by cracking down on overpayments of benefits and tax loopholes — that is money going to businesses and people to which they are simply not entitled," he said.

"And we'll save billions of dollars by rolling back tax cuts for the wealthiest Americans, while giving a middle-class tax cut to 95 per cent of hard-working families."

Going into debt in the short term will help restore American business vitality, but Obama said lowering the debt in the longer-term would be the only responsible approach to the country's fiscal policies.

The blueprint is a 140-page outline, with a fully fleshed out version scheduled for release in April.

But it is only a proposal, which must get approval from Congress, where it is expected to spark fierce debate.

"This budget plan is once again a missed opportunity for American taxpayers," said Judd Gregg, the top budget committee Republican who was nominated by Obama to join his cabinet as commerce secretary but then withdrew. "It raises taxes on all Americans, implements massive new spending and fails to make any tough choices to control the deficit."

Among the highlights of the budget:

Health care

• Trim health-care spending — which stands at $2.4 trillion a year — and divert those resources to create a 10-year, $634-billion reserve fund to expand coverage for 48 million uninsured Americans.
• About half of the fund's resources would come from cuts in Medicare — scaling back payments to private insurance plans that serve older Americans, and charging upper-income beneficiaries a higher premium for Medicare's prescription drug coverage.
• To raise the other half of the reserve fund, the budget would reduce the rate by which wealthier people can cut their taxes through deductions for mortgage interest, charitable contributions, local taxes and other expenses to 28 cents on the dollar, rather than the 35 cents they can claim now.

Taxes

• Extend the $400 annual tax cut due to start showing up in workers' paycheques in April, and extend the tax cuts passed in 2001 and 2003 for couples earning less than $250,000 per year. Those tax cuts were due to expire at the end of 2010.
• Raise income taxes and curb deductions for couples making more than $250,000 a year beginning in 2011, which would allow their marginal rate to rise from 35 per cent to 39.6 per cent.
• Raise taxes on wealthy hedge fund managers and corporations.
• Eliminate tax incentives U.S. companies now have to move jobs overseas.
• Phase out direct payments to farming operations with revenues above $500,000 a year.

Military

• An additional $75 billion will cover the costs of wars in Iraq and Afghanistan through September, on top of $40 billion already being spent. An extra $130 billion for Iraq and Afghanistan in 2010 and $50 billion annually is budgeted to cover the costs of operations in Iraq and Afghanistan.

Climate Change

• $15 billion a year over 10 years to develop technologies such as wind and solar power, and to build energy efficient cars and trucks.
• Hundreds of billions of dollars would be raised by auctioning off permits to exceed carbon emission caps, which would be imposed on users of fossil fuels to address global warming. Some revenues from the pollution permits would be used to extend the "Making Work Pay" tax credit of $400 for individuals and $800 for couples beyond 2010.

With files from the Associated Press