Obama may snip domestic spend

The move is aimed at reining in inflation

Obama will outline the spending hold-down in his State of the Union address on Wednesday and will spell it out in detail on February 1, 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. 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. Obama’s proposed budget savings will need congressional backing and would exclude Defense, Veterans Affairs, Homeland Security and spending on international affairs, officials said.

The officials declined to detail which agencies or programmes 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.

Budget deficit
Adjusted for inflation, the freeze would mean effective budget cuts in those areas of spending, officials said. The United States ran a record $1.4 trillion budget deficit in fiscal year 2009. Part of the problem, on top of a severe recession that hit government revenue, are entitlement programmes like social security and medicare, the huge public healthcare programme for older Americans.

Obama wants to reduce soaring medicare costs through an overhaul of $2.5 trillion US healthcare system, but his reforms are bogged down in Congress. Officials said the proposed freeze would not affect entitlement programmes but argued it could help set a tone of fiscal discipline.

The freeze would cut the deficit by between $10 billion and $15 billion in fiscal 2011. A total of $250 billion would be wrung from the budget by 2020, they said.
But, the impact would not undermine the economy’s recovery after most prolonged contraction in 70 years.