At the same time, he wants to boost spending in transportation and education, arguing those areas will give the economy a quick boost.
"We must transform our budget from one focused on speculating, spending and borrowing to one constructed on the solid foundation of educating, innovating and building," the administration said.
Included in the education spending is an $8 billion proposal for community colleges across the U.S. The administration said the new budget provides short-term relief, while tackling long-term deficits.
However Republicans quickly rejected the budget, arguing it is a rehashing of ideas that have been proposed in the past.
"It seems like the president has decided again to campaign instead of govern," Republican Rep. Paul Ryan, chairman of the House Budget Committee, said in an interview. "He's just going to duck the responsibility to tackle this country's fiscal problems."
Obama's spending plan for the budget year that begins Oct. 1 projects a deficit for this year of $1.33 trillion. That would mean four straight years of trillion-dollar-plus deficits.
Under Obama's outline, the deficit would decline to $901 billion in 2013 with continued improvements shrinking the deficit to $575 billion in 2018.
Congress isn't expected to make major decisions until later this year, following the November election.
The Associated Press contributed to this story.