Tuesday, January 26, 2010

Obama Seeks Freeze on Many Domestic Programs

January 26, 2010

Obama Seeks Freeze on Many Domestic Programs

New York Times

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 Monday.

The officials said the proposal would be a major component both of Mr. Obama’s State of the Union address on Wednesday and of the budget he will send to Congress on Monday for the fiscal year that begins in October.

The freeze would cover the agencies and programs for which Congress allocates specific budgets each year, including air traffic control, farm subsidies, education, nutrition and national parks.

But it would exempt security-related budgets for the Pentagon, foreign aid, the Veterans Administration and homeland security, 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 would be less than 3 percent of the roughly $9 trillion in additional deficits the government is expected to accumulate over that time.

The initiative holds political risks as well as potential benefits. Because Mr. Obama plans to exempt military spending while leaving many popular domestic programs vulnerable, his move is certain to further anger liberals in his party and senior Democrats in Congress, who are already upset by the possible collapse of health care legislation and the troop buildup in Afghanistan, among other things.

Fiscally conservative Democrats in the House and Senate have urged Mr. Obama to support a freeze, and it would suggest to voters, Wall Street and other nations that the president is willing to make tough decisions at a time when the deficit and the national debt, in the view of many economists, have reached levels that undermine the nation’s long-term prosperity. Perceptions that government spending is out of control have contributed to Mr. Obama’s loss of support among independent voters, 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, that have been financing Washington’s budget deficit.

Republicans were quick to mock the freeze proposal. “Given Washington Democrats’ unprecedented spending binge, this is like announcing you’re going on a diet after winning a pie-eating contest,” said Michael Steel, a spokesman for the House Republican leader, Representative John A. Boehner of Ohio.

The spending reductions that would be required would have to be agreed to by Congress, and it is not clear how much support Mr. Obama will get in an election year when the political appeal of greater fiscal responsibility will be vying with the pressure to provide voters with more and better services. The administration officials said the part of the budget they have singled out — $447 billion in domestic programs — amounts to a relatively small share, about one-eighth, of the overall federal budget.

But given the raft of agencies and programs within that slice, the reductions will mean painful reductions that will be fought by numerous lobbies and constituent groups. And not all programs will be frozen, the administration officials said; many will be cut well below a freeze or eliminated to provide increases for 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. Mr. Obama and Vice President Joseph R. Biden Jr. outlined a number of new proposals that will be in the budget to help the middle class. They cover issues including child care, student loans and retirement savings.

Administration officials also are working with Congress on roughly $150 billion in additional stimulus spending and tax cuts to spur job creation. But much of that spending would be authorized in the current fiscal year, the officials said, so it would not be affected by the proposed freeze that would take effect in the fiscal year beginning Oct. 1.

It is the growth in the so-called entitlement programs — Medicare, Medicaid and Social Security — that is the major factor behind projections of unsustainably high deficits, because of rapidly rising health costs and an aging population.

But one administration official said that limiting the much smaller discretionary domestic budget would have 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, briefing reporters on the condition of anonymity.

The administration officials did not identify which programs Mr. Obama would cut or eliminate, but said that information would be in the budget he submits next week. For the coming fiscal year, the reductions would be $10 billion to $15 billion, they said. Last year Mr. Obama proposed to cut a similar amount — $11.5 billion — and Congress approved about three-fifths of that, the officials said.

The federal government’s discretionary domestic spending has grown about 5 percent on average since 1993, according to the administration. It spiked to about 27 percent from 2008 to 2009, however, because of the recession. The sudden increase reflected both the first outlays from the $787 billion stimulus package as well as automatic spending for unemployment compensation and food stamps that is triggered during an economic downturn.

The freeze that Mr. Obama will propose for the fiscal years 2011 through 2013 actually means a cut in real terms, since the affected spending would not keep pace with inflation.

According to the administration, by 2015 that share of the federal budget will be at its lowest level in a half-century relative to the size of the economy.

“A lot of our caucus won’t like it but I don’t think we have any choice,” said an adviser to Congressional Democratic leaders, who would only speak on condition of anonymity about internal party deliberations. “After Massachusetts and all the polls about independents’ abandoning us for being fiscally irresponsible, we can’t afford to be spending more than Obama.”

While the Democrats’ unexpected loss of a Massachusetts Senate seat in a special election last week gave new impetus to administration efforts to tackle the deficit, those efforts actually have been under way since last fall, when officials began early work on the 2011 budget.

Mr. Obama’s budget director, Peter R. Orszag, initially directed Cabinet secretaries and agency heads to propose alternative budgets — one with a freeze and another that cut spending by 5 percent. Months of internal arguments and appeals followed.

David M. Herszenhorn contributed reporting from Washington.

No comments: