By Roger Runningen
Jan. 26 (Bloomberg) -- President Barack Obama will call in his State of the Union address for a three-year freeze on spending for many domestic programs as part of his strategy to rein in the deficit, administration officials said.
The proposal, which wouldn’t affect spending on national security, would save an estimated $250 billion over a decade and reduce the deficit by $10 billion to $15 billion in 2011, according to the two officials, who briefed reporters on the plan. Last year’s budget shortfall was a record $1.4 trillion, and the Congressional Budget Office today forecast this year’s will be $1.35 trillion.
Obama will unveil the plan in his address to a joint session of Congress tomorrow night and include it in the fiscal year 2011 budget he’s set to deliver to lawmakers Feb. 1, the officials said.
In the State of the Union, the president will emphasize steps to spur economic growth and job creation as well as imposing fiscal discipline on the federal government. With midterm elections in November to determine control of Congress, the president is confronting voter anger over taxpayer bailouts, government debt and a sluggish economy with 10 percent unemployment nationwide.
“We are going to have to be serious about the deficit in ways that we haven’t been before,” Obama said yesterday in an interview with ABC News. “We need a smarter government, not a bigger government, not a smaller government, we need a smarter government. And we don’t have one right now.”
Departments Affected
The Environmental Protection Agency and the Commerce, Interior and Justice Departments are among the executive branch agencies subject to the freeze, officials said, while the Defense Department, Department of Homeland Security, Veterans Affairs and unspecified international affairs programs would be exempt.
The administration officials, who briefed reporters on condition of anonymity, said the spending freeze is one element of Obama’s plans for cutting the deficit.
The freeze covers non-security discretionary spending, which amounted to about $447 billion this year out of a $3.5 trillion federal budget. Spending on programs such as Medicare, Medicaid and Social Security, along with interest on the national debt, are set by law and make up the biggest portion of the budget.
Some Increases
The freeze in effect represents a cut in spending, after inflation is taken into account, the officials said. Still, they said that limit won’t be imposed across-the-board. Some departments and agencies would actually see their budget increase, suggesting others will be cut.
Programs that likely would get increases include initiatives on energy technology or where spending is deemed crucial to economic growth and job creation, officials said.
With the economy having shed more than 7 million jobs since the recession began in December 2007, Obama already has called for more spending on infrastructure projects to create jobs, along with tax cuts and credits for businesses to encourage hiring.
Obama and Vice President Joe Biden yesterday announced proposals for a package of tax cuts aimed at middle-income Americans that include an increased tax credit for child care and an expansion of tax credits to match retirement savings.
The White House also is backing a $154 billion jobs bill that passed the House last month. In addition, the president said Jan. 19 that he will add $1.35 billion to his budget for an education program to improve students’ test scores.
Voter Concerns
While the public sees both unemployment and the deficit as a threat, anxiety over unemployment is higher, according to a Bloomberg National Poll conducted Dec. 3-7. Eight out of 10 poll respondents rated unemployment a high risk to the economy in the next two years, while 7 of 10 said the same about the deficit.
Senator Evan Bayh, an Indiana Democrat, indicated last week that Obama may propose the freeze to hold down spending.
“The president can say in this State of the Union address, ‘I’m going to include in my budget a freeze on discretionary spending, I’m drawing a line in the sand, and I’m going to use my veto pen to enforce that,’” Bayh said in a Jan. 22 interview on Bloomberg Television’s “Political Capital with Al Hunt.”
The Obama proposal follows increases in the government’s discretionary budget. The Democratic majority in Congress last month approved legislation that increased funding for scores of programs by an average of 12 percent. Lawmakers said the increases were needed to shore up important priorities.
CBO Report
The CBO is set to issue today its 10-year budget forecast, including revisions for the deficit over the next decade. The report’s forecast for of a $1.35 trillion shortfall is in line with White House projections. The CBO figure is based on current law and doesn’t account for proposals still working through Congress or additional spending that may be requested for war funding.
Obama’s plan is subject to approval by Congress, and the White House is braced for opposition, one of the administration officials said.
A spokesman for House Republican leader John Boehner of Ohio was critical of Obama’s plan. “Given Washington Democrats’ unprecedented spending binge, this is like announcing you’re going on a diet after winning a pie-eating contest,” the spokesman, Michael Steel, said yesterday.
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