WASHINGTON -- President Barack Obama on Thursday unveiled a $3.55 trillion spending plan for next year that would boost taxes on the wealthy and curtail Medicare to make way for a $634 billion down payment on universal health care.

In addition to sending Congress his budget for 2010, Obama on Thursday proposed a series of changes that would push spending to $3.94 trillion in the current year. That would result in a record deficit Obama projects will hit $1.75 trillion, reflecting the massive spending being undertaken to battle a severe recession.

As part of the effort to end the crisis, the administration proposed boosting the deficit by an additional $250 billion this year, enough to support as much as $750 billion in increased spending under the government's financial rescue program.

Obama called the plan a "hard choices" budget.

Obama also promised Thursday to slash federal spending by $2 trillion, even as the administration initially invests large sums of money to revive the faltering economy.

Obama acknowledged that "we must add to our debt in the short run" in order to restore American business vitality. But at the same time, he said lowering the debt in the longer term would be the only responsible approach to the country's fiscal policies.

He spoke Thursday morning as his administration was preparing to release an outline of its tax and spending proposals for the new budget year starting Oct. 1. He said his budget is "an honest accounting of where we are and where we intend to go."

Obama said that the administration has "already identified" areas in which it can eventually slash federal spending by $2 trillion.

Administration officials talking on grounds of anonymity earlier told The Associated Press that the new blueprint predicts a whopping $1.75 trillion deficit in the current budget year, reflecting efforts to pull the nation out of a deep recession and a severe financial crisis.

Administration officials said the plan will propose cutting Medicare costs in order to provide health care for more uninsured Americans.

Obama also pointed to the start of a subsidy Thursday that he said will help 7 million more Americans who've lost their jobs keep their health care.

The stimulus package that Obama signed into law includes a dramatic, temporary expansion of the program that lets unemployed people keep health insurance from their old job for up to 18 months if they pay for it in full. The new provision lowers the costs by about two-thirds for a year.

Obama said 7 million Americans will now have "one less thing to worry about when they go to sleep."

Tax Increases, Cuts

The plan also will propose raising taxes on the wealthy in 2011, while the president also wants Congress to extend the $400 annual tax cut due to start showing up in workers' paychecks in April. The budget also seeks an extension of 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.

The budget also includes a provision providing $250 billion -- if it is needed -- to prop up troubled banks and other businesses, the Associated Press reported.

That would be on top of the $700 billion Congress has already approved for dealing with the nation's worst financial crisis in seven decades.

Obama's budget says cutting subsidies to wealthy farms and raising taxes on hedge fund managers and other upper-income Americans can help reduce the deficit to $533 billion by 2013.

The plan seeks to phase out direct federal payments to farming operations that have revenues above $500,000 a year, a move sure to cause concern among rural Democrats.

Obama: War Costs Now On Books

Obama will also ask for an additional $75 billion to cover the costs of military operations in Iraq and Afghanistan through September.

Obama said the true costs of the wars in Iraq and Afghanistan will no longer be "left off the books."

He said those costs are being included in the budget he's unveiling Thursday.

Obama said officials "need to be honest" with themselves about the costs of those wars.

He said American families can't leave big expenditures out of their budgets, and neither can the government.

For too long, Obama said, the government "hasn't told the whole truth" about where money is being spent.

Obama Seeks To Cut Deficit By Half

The plan also contains a controversial proposal to raise hundreds of billions of dollars by auctioning off pollution permits. Those permits would allow users of fossil fuels to exceed carbon emission caps that Obama wants to impose to address global warming.

The president's budget seeks to get the deficit down to less than half this year's estimated $1.5 trillion by 2013. But that would still leave the federal government heavily in the red, with deficits remaining above $500 billion a year over the second half of the decade.

The budget is a 140-page outline, with the complete details scheduled to come in mid- to late April, when the new administration sends up the massive budget books that will flesh out its spending plan.