President Obama is releasing his budget proposal for the 2012 fiscal year this morning.  It includes a revised estimate of the 2011 deficit, increasing the estimated annual loss from $1.48 trillion to $1.65 trillion, the largest federal budget deficit ever.

The report attributes the increase to the impact of the December, 2010 tax deal.  In particular, administration officials point to the extension of the 2001 tax cuts and the one year payroll tax holiday.  When these provisions expire in 2012, the deficit is expected to shrink to $1.1 trillion.

President Obama is planning to cut the annual deficit in half "by the middle of the decade" according to his televised remarks.  The budget proposal includes spending cuts, tax cuts and tax increases.  For example, the administration would pay for extending the exemptions from the Alternative Minimum Tax for the middle class by decreasing the value of itemized deductions for the wealthy.

The President has indicated he is ready to work with the Republican majority in the House of Representatives and the Democratic majority in the Senate to keep spending to more affordable levels.