Wed, Jan 27, 2010 - Page 1 News List

Obama to propose three-year freeze in domestic spending

REUTERS , WASHINGTON

US President Barack Obama, under pressure from deficit hawks, will seek a three-year freeze on domestic spending in his fiscal year 2011 budget that would save US$250 billion by 2020, administration officials said on Monday.

Obama will outline the spending hold-down in his State of the Union address today and will spell it out in detail next Monday, when he unveils his second budget.

Obama is under fire for a record deficit and has called for a bipartisan congressional commission to consider spending cuts and tax increases to improve the country's fiscal outlook.

Democrats are jittery after the Massachusetts election of a Republican for the Senate seat long held by the late Edward Kennedy, worried that it may be a warning sign for congressional elections in November.

That election dealt a blow to Obama's top domestic priority, healthcare reform, and in his State of the Union address, the president is expected to focus on job creation and economic growth, which public opinion polls show to be at the top of the list of concerns for many Americans.

In proposing the spending freeze, Obama seeks to address some of those concerns, but some economists were skeptical that it would by itself have a major impact.

“We doubt it will make any visible dent in the deficit projections — that requires spending cuts and tax raises, not just spending freezes,” said Michael Katz, an economist at Forecast in Sydney.

“The news of a spending freeze, in our opinion, will have little impact on the US dollar or economy in medium term,” he said.

Obama’s proposed budget savings will need congressional backing and would exclude defense, veterans affairs, homeland security and spending on international affairs, the officials said.

“We are in the midst of fighting a war and have security needs. We're going to fund those security needs as necessary,” one of the officials told reporters, speaking on condition of anonymity.

The officials declined to detail which agencies or programs would be hit, but said the overall freeze in so-called discretionary non-security spending would not halt investment in some areas, and would be balanced by cuts elsewhere.

Adjusted for inflation, the freeze would mean effective budget cuts in those areas of spending, the officials said.

Republicans dismissed the move as window-dressing by Obama's Democrats after an “unprecedented spending binge.”

“This is like announcing you're going on a diet after winning a pie-eating contest,” said Michael Steel, spokesman for House of Representatives Republican leader John Boehner.

However, a White House official said that discretionary non-security spending had risen sharply during the years when Republicans had controlled Congress under Obama's predecessor, former president George W. Bush.

The current fiscal year budget allocated US$447 billion to non-security discretionary spending, or about one-eighth of the overall budget. Agencies that could feel the pinch include the commerce, interior justice and labor departments, as well as the Environmental Protection Agency.

The US ran a record US$1.4 trillion budget deficit in fiscal year 2009.

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