President Barack Obama is sending Congress a budget Thursday that projects the government's deficit for this year will soar to $1.75 trillion, reflecting efforts to pull the nation out of a deep recession and a severe financial crisis.
Obama's budget overview will call for between $3.5 trillion and $4 trillion in spending in fiscal year 2010 and creates space for up to $750 billion in additional bank bailout funds this year - money that hasn't been requested and the administration hopes will not be necessary to stabilize the still-reeling financial system.
The White House will formally release its budget overview at 11 a.m. Thursday.
The president's budget will also set aside a $634 billion "reserve fund" as a down payment to cover roughly two-thirds of the anticipated 10-year cost of universal health care coverage -- projected at $1 trillion.
The administration will work with Congress to locate the remaining funds to finance the plan.
"This is a very significant down payment," a senior administration official told FOX News. "We consider putting this reserve fund on the table a more auspicious approach to getting this done this year."
The White House contends by directly telling Congress how much universal health coverage is projected to cost, it can devote more time to debating the methods of achieving coverage instead of getting bogged down in conflicting cost estimates.
The president will finance about half of its "reserve fund" allocation by limiting itemized deductions to couples who earn $250,000 or more to 28 percent of the total itemized deductions they claim.
This change is projected to generate $317.8 billion over 10 years, or roughly half the cost of universal coverage.
The president also will seek $177 billion in savings over 10 years by reducing government subsidies to Medicare Advantage, the private-sector insurance component of Medicare. Under Medicare Advantage, private insurers provide government-approved health insurance coverage and are reimbursed for costs on an annually adjusted basis.
The administration will tell Congress it is setting aside upwards of $750 billion this year in case major U.S. banks need more capital to survive. This figure exceeds by $50 billion the $700 billion allotted in the first Wall Street bailout, known officially as the Troubled Asset Relief Program (TARP).
A senior administration official who briefed on the budget outline insisted these funds haven't been requested and that the administration sees no current need to request them. However, the president told Congress Tuesday that taxpayers may need to devote more money to rescue ailing banks. The official said Obama wanted to insert a realistic figure in the budget to reflect that possibility.
"We hope this is not necessary," the official said.
The $750 billion in potential bailout funds would be used to acquire stock holdings in banks in dire need of capital infusions. The funds would likely purchase common stock in a process that would reduce debt loads on bank balance sheets and provide the means to re-enter the loan market. As with the TARP funds, the actual cost to taxpayers will be less than the $750 billion subsidy figure the White House will place in its budget.
The White House and the Congressional Budget Office (CBO) both count funds used for capital subsidies at one-third their actual cost. In other words, to generate $750 billion in bailout subsidies, taxpayers will have to provide $250 billion in direct funds. Under this accounting, $250 billion in tax dollars supports $750 billion in bailout subsidies. For example, the original TARP allocation of $700 billion is scored by the White House and the CBO as a direct taxpayer allocation of $234 billion
OTHER BUDGET HIGHLIGHTS:
The Bush tax cuts for those earning more than $250,000 a year expire on schedule at the end of 2010. The higher tax rates will take affect in 2011 and, with the exception to changes in withholding, will be most apparent when taxpayers file their 2011 tax returns in the spring of 2012. Congress will have to extend the Bush tax cuts for those earning less than $250,000, a move Obama will support.
The administration has identified some preliminary savings it will ask Congress to approve.
* Phase out of direct payments to farms (mainly corporate ones) with sales revenue of more than $500,000 per year. This two-year phase out of payments, which go to 25 percent of all farms receiving direct payments, is projected to save $9.8 billion over 10 years. It will also ask Congres to abolish payments for the storage of cotton, generating a projected 10-year savings of $570 million.
* Eliminate the tiny Federal Mentoring Program, an initiative started in the second Bush presidency that costs $49 million a year. The administration says this program was added to more than 100 other youth-oriented programs at 13 different agencies. The 10-year savings is projected to be $500 million.
* Eliminate a small tax cut known as the "Advance" Earned Income Tax Credit. Projected 10-year savings is $880 million.
* Require investment managers (almost exclusively private equity and hedge fund managers) to pay their standard income tax rate -- instead of the current 15 percent rate -- on their income from annual fund profits. This is known as a "carried-interest" loophole because fund managers or investment managers typically pay income tax rates at their normal rate, but only 15 percent -- the current capital gains tax rate - on a portion of the fund's annual profits (upwards of 20 percent).
* The administration will seek an additional $300 million to hire additional IRS agents to police and collect a portion of an estimated $350 billion in uncollected taxes. It will also seek "legislative and enforcement measures to reduce tax evasion and avoidance," including steps to "limit U.S. corporations' ability to deduct currently expenses allocable to deferred foreign earnings." Translated, the administration will try to crack down on offshore tax shelters used by corporations and individuals to shield income earned in the U.S. from the IRS.
* The president will seek significant savings from Pentagon procurement. No details or cost savings were specified but are expected Thursday when Defense Secretary Robert Gates briefs reporters on the overall defense budget.
FOX News' Major Garrett and the Associated Press contributed to this report.