President Obama’s first budget is an audacious plan to transform America. Even while dealing with the worsening economic crisis, the president demands that we address the nation’s other most pressing problems–from catastrophic climate change to our broken healthcare system. Once the economy has returned to growth, he calls for greater taxes on the wealthy to help cut the deficit in half over four years. Not since Lyndon Johnson’s Great Society and Ronald Reagan’s conservative rollback has a president proposed anything this ambitious. If passed, it will mark a new era of progressive governance. And yet, in sad testament to how deeply we have fallen, its greatest weakness is that it is not bold enough.

The president calls for major expansion of the federal role in healthcare, energy and education. He’d make a significant down payment–more than $630 billion over ten years–on universal healthcare, which he wants passed this year. He invests in energy efficiency and projects passage of a cap-and-trade system to limit carbon emissions, auctioning permits to pay for tax cuts that will help working people defray the costs. He makes dramatic investments in education–doubling the number of children served by Early Head Start and turning Pell grants into an entitlement.

To help pay for this, he slaughters many sacred cows. He’ll slash the obscene subsidies handed to insurance companies to compete with Medicare. Reduce prescription drug prices. Cut subsidies to agribusiness. Let Bush’s tax cuts for those earning more than $250,000 expire. Tax the earnings of equity fund managers as income. Cut subsidies to oil companies. Eliminate banks from the student loan program.

This will spark the mother of all budget battles. Agribusiness, Big Oil, Big Pharma, Wall Street, the business, insurance and military lobbies–all are gearing up multimillion-dollar campaigns to block, limit or delay the change. Republicans, led by Newt Gingrich and Rush Limbaugh, will offer massive resistance, railing against deficit spending and taxes. A citizen mobilization will be needed across the country to sustain the reforms. Soon after the budget rollout, Obama warned the country that the lobbyists and interests are “gearing up for a fight as we speak. My message to them is this: so am I.”

The conservative fulminations on spending and deficits aren’t merely hypocritical from the party that doubled the national debt in a period of economic recovery. They are deeply wrongheaded. As Federal Reserve chair Ben Bernanke testified, the alternative to record deficits would be “a prolonged episode of economic stagnation.”

In fact, the real danger isn’t that Obama is spending too much, but too little. The budget optimistically projects that the economy will return to robust growth next year and enjoy brisk 4 percent growth thereafter. Tax hikes and spending cuts are slated to kick in as the economy recovers, leading even Bernanke to warn about the dangers of “premature removal of fiscal stimulus that could blunt the recovery.”

The real threat we face isn’t the conservative howl about spending and inflation; it’s the clear and present danger of a global depression. Most likely, Obama will have to come back for another stimulus and more money for restructuring the banks. For obvious reasons, he is eager to reassure Americans that he will halve the deficit by the end of his term. But until the downturn is stemmed, focus on deficit reduction is misleading, if not dangerous.

Moreover, the president’s plan is the first step toward needed long-term reforms. His budget does little to challenge our bloated military budget. Domestic discretionary spending–everything other than entitlements like Social Security and interest on the national debt–declines to about 3.6 percent of the economy, the lowest level since 1962. When the deficit-financed recovery plan ends in two years, investment in education, energy, transportation and more will face deep cuts.

But none of this should distract from the scope of the battle ahead. The president has repudiated the failed conservative policies of the past and called on the country to change course. He has put forth a budget that calls for sweeping change. He has raised the stakes. This will be a transformational presidency if he succeeds. We dare not let him fail.