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Obama to seek spending freeze
- Article by: JACKIE CALMES , New York Times
- Updated: January 25, 2010 - 9:22 PM
Under pressure over mammoth deficits, he would curtail spending on many domestic programs for three years.
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WASHINGTON - President Obama will call for a three-year freeze in spending on many domestic programs and for increases no greater than inflation after that, an initiative intended to signal his seriousness about cutting the budget deficit, administration officials said on Monday.
The officials said the proposal would be a major component both of Obama's State of the Union speech on Wednesday and the budget that he will send to Congress next Monday for fiscal year 2011 that begins in October.
The freeze would cover the agencies and programs for which Congress allocates specific budgets each year, from air traffic control and farm subsidies to education, nutrition and national parks.
But it would exempt the Pentagon, foreign aid, Veterans Affairs and homeland security budgets, as well as the entitlement programs that make up the biggest and fastest-growing part of the federal budget: Medicare, Medicaid and Social Security.
The payoff in budget savings would be small relative to the deficit: The estimated $250 billion in savings over 10 years is less than 5 percent of the $9 trillion to $10 trillion in additional debt the government is expected to accumulate over that time.
The initiative holds political risks as well as potential benefits. Because Obama plans to exempt military spending while leaving many popular domestic programs vulnerable, his move is certain to further anger liberals. Senior Democrats in Congress are already upset by the possible collapse of health care legislation and the troop buildup in Afghanistan.
But it would signal to voters, Wall Street and other nations that Obama is willing to make tough decisions at a time when the deficit and the national debt, in the view of some economists, have reached levels that undermine the nation's long-term prosperity. Perceptions that spending is out of control have contributed to Obama's loss of support among independents, and concern about the government's fiscal health could put upward pressure on the interest rates the United States has to pay to borrow money from investors and nations, especially China.
Obama's proposal would have to be agreed to by the House and Senate, and it is not clear how much support he will get in an election year when the appeal of greater fiscal responsibility will be vying with the pressure to provide voters with more and better services.
A balancing act
Administration officials said that the portion of the budget they have singled out -- $447 billion in domestic programs -- amounts to a relatively small share, about one-sixth, of the overall federal budget. But given the raft of programs within that slice, the reductions will mean painful reductions that will be fought by numerous groups.
And not all programs will be frozen, the administration officials said; many will be cut well below a freeze or eliminated to protect programs that are higher priorities for the administration in areas like education, energy, the environment and health.
The balancing act of picking winners and losers was evident on Monday at the White House. Obama and Vice President Joe Biden outlined a number of new proposals that will be in the budget to help the middle class.
Under the proposals, the child-care tax credit would be nearly doubled for families earning less than $85,000, federal student loan repayments would be capped at a lower level, employers would be required to offer automatic payroll deductions for retirement accounts and financing would be increased for families caring for elderly relatives.
"None of these steps alone will solve all the challenges facing the middle class," Obama said. "But hopefully some of these steps will reestablish some of the security that's slipped away in recent years. Because in the end, that's how Joe and I measure progress -- not by how the markets are doing, but by how the American people are doing. It's about whether they see some progress in their own lives."
GOP not impressed
Republicans called Monday's proposals a publicity-seeking photo-op that would do nothing to create jobs.
"Americans are asking, 'Where are the jobs?' but none of the proposals outlined by the White House today would, in fact, create jobs," said Rep. John Boehner, R-Ohio, his party's leader in the House.
Obama suggested that his new proposals aren't aimed so much at creating jobs now, as they are at helping middle-class pocketbooks over the longer term.
"Creating good, sustainable jobs is the single most important thing we can do to rebuild the middle class," he said. "But we also need to reverse the overall erosion in middle class security so that when this economy does come back, working Americans are free to pursue their dreams again."
It is the growth in entitlement programs -- Medicare, Medicaid and Social Security -- that is the major factor behind projections of unsustainably high deficits, due to rapidly rising health costs and an aging population.
But one administration official said that limiting the much smaller discretionary domestic budget would have larger symbolic value. That spending includes lawmakers' earmarks for parochial projects, and only when the public believes such perceived waste is being wrung out will they be willing to consider reductions in popular entitlement programs, the official said. "By helping to create a new atmosphere of fiscal discipline, it can actually also feed into debates over other components of the budget," the official said.
The freeze that Obama will propose actually means a cut in real terms since the affected spending would not keep pace with inflation.
The Associated Press contributed to this report.
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