Tuesday, January 26, 2010

Obama to Announce Spending Freeze in State of the Union Address

Sources: WSJ.com: Budget Freeze is Proposed; Reuters.com: Obama to Seek 3-year Freeze on Domestic Spending; Marketwatch.com: Obama Reportedly to Propose a Three-Year Budget Freeze; Huffingtonpost.com: Obama Spending Freeze: President to Propose Three-Year Discretionary Spending Freeze; Newyorktimes.com: Obama Seeks Freeze on Many Domestic Programs.

President Obama is set to give his State of the Union address on Wednesday, January 27, 2010. As part of his speech, the President will be calling for a spending freeze on many domestic programs in an effort to regain some control over the country’s massive deficit. The freeze will be a part of the President’s budget that he will send to Congress, and will be incorporated into the fiscal year that begins in October. Programs affected by the freeze will be those to which Congress allocates a yearly budget, such as education and national parks. These initiatives will not receive an increase in funding over the three year period, barring the cost of inflation. Obama’s proposed freeze would exempt security-related government programs such as homeland security as well as programs like Medicaid, Medicare and Social Security.

The reception for this proposed spending freeze is sure to be mixed. Liberal democrats in Congress are likely to disapprove of a freeze that would limit domestic spending while leaving the budget for military spending wide open. Republican members of the House have already responded negatively to the President’s plan, scoffing at the idea that a democratic administration would be successful at controlling domestic spending. Despite this criticism, there are those in Congress who have come out in support of the freeze. Fiscally conservative democrats have been encouraging President Obama to reduce spending since the start of his presidency. Perceptions of Obama as a big spender have contributed to his loss of independent and conservative supporters as well as a mounting distrust from investing nations like China. A loss of confidence in the United States’ financial welfare could raise interest rates from foreign financiers.

The Administration highlights that the spending freeze will not affect all qualifying government programs. Some funding for programs on the chopping block will be reduced so severely that other programs will be saved from the freeze. Obama’s camp has also suggested that the budget will contain new proposals to help the middle class, dealing with issues like student loans and child care. There will also be an attempt to stimulate spending and job creation in the budget proposal. It is expected that the relative savings after the spending freeze will amount to $250 billion after ten years. The deficit is expected to be at $9 trillion over the same ten year period, meaning that the proposed savings would only total three percent of money owed.

Discussion Questions:
1. Why would President Obama create what is essentially a bottomless fund for military spending? Would it be reasonable for the president to commit to a spending freeze on the nation’s security budget in wartime?
2. Last week Republican senate hopeful Scott Brown beat out Democrat Martha Coakley for the Senate seat in Massachusetts by a margin of almost 5%. What role do you think last week’s Senate race play in President Obama’s decision to stray from his campaign platforms of heightening social welfare programs?

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