Impact of Obama’s Spending Freeze Questioned

By Fred Lucas | January 26, 2010 | 6:28 PM EST

President Barack Obama announces economic initiatives for struggling middle class families on Monday, Jan. 25, 2010, in the Eisenhower Executive Office Building across from the White House. (AP Photo/Charles Dharapak)

( – During the third presidential debate in October 2008, candidate Barack Obama said, “We do have a disagreement about an across the board spending freeze. It sounds good. It’s proposed periodically and it doesn’t happen.”
The periodic proposal will come again Wednesday, as President Obama is calling for a three-year freeze on non-defense discretionary federal spending as a means of reducing the deficit. This comes after the president’s first year in office that saw a near-20 percent hike in discretionary spending.
But the $250 billion in savings over 10 years could make only a marginal dent in the federal deficit which was $1.4 trillion in 2009 and will be an estimated $1 trillion per year for the next decade, according to the Congressional Budget Office. The national debt, meanwhile, is $12.3 trillion.
“We believe we have to address the medium- and long-term fiscal health of our country,” White House spokesman Robert Gibbs said Tuesday. “I don’t believe that as I said earlier that this has a significantly negative impact macro-economically on our economy.”
Still, the president was a skeptic about spending freezes less than two years ago. At the first presidential debate in September 2008, Obama said, “The problem with a spending freeze is you’re using a hatchet where you need a scalpel.”
President George W. Bush’s final budget for fiscal year 2009 had $589 billion in discretionary spending. Obama’s first budget proposal for fiscal year 2010 hiked non-defense discretionary spending by 19.5 percent to $704 billion.
Thus, even if frozen, discretionary spending would be significantly higher than during the previous administration.
Still, Republicans would welcome a sincere effort to slash federal spending, said House Republican Conference Chairman Mike Pence. But, he added, Democrats are still pushing a “laundry list of new government spending and handouts.”
“I have never met a spending freeze I didn’t like,” Pence (R-Ind.) said at a Heritage Foundation even Tuesday.
“A number of us [Republicans] pointed out that the omnibus spending bill increases spending by 12 percent,” Pence said, recalling a mid-December meeting with the president and House members. “I told him, Mr. President, back in Munsee, Ind., there is not a business getting 12 percent increase. I said to the president, you asked us here to give you good ideas.
“Here’s a good idea. Why don’t you go ahead and veto the omnibus bill and do a spending freeze? We’ll keep the government going through continuing resolutions,” Pence added.
But many House Democrats are opposed to the freeze, according to The Hill newspaper, and are calling on the White House to fix the economy before addressing the deficit. House Democrats have proposed spending $80 billion on a “jobs bill” and have proposed raising the debt ceiling by another $1.9 trillion.
Gibbs said there is no contradiction in raising the debt ceiling while freezing spending.
“We have to pay the bills for what we’ve spent already,” he said.
The deficit is how much more government expenditures are than revenue. Debt is what the federal government has borrowed.
In January, the CBO reported a major increase in the deficit from October through December – the start of fiscal 2010 – compared to the first quarter of the previous fiscal year.
“The federal budget deficit was about $390 billion in the first quarter of fiscal year 2010, CBO estimates—$56 billion more than the shortfall in the same period in fiscal year 2009,” the CBO analysis said. “Outlays were slightly lower than they were last year at this time, but revenues have fallen by about 11 percent.”
The CBO projects that if current policies remain in place, there will be a $1.3 trillion deficit by the end of the year.
“Accumulating deficits are pushing federal debt to significantly higher levels. CBO projects that total debt will reach $8.8 trillion by the end of 2010. At 60 percent of GDP, that would be the highest level since 1952,” the CBO analysis said.
“Under current laws and policies, CBO’s projections show that level climbing to 67 percent by 2020. As a result, interest payments on the debt are poised to skyrocket; the government’s spending on net interest will triple between 2010 and 2020, increasing from $207 billion to $723 billion,” it added.