By Lori Montgomery
Washington Post Staff Writer
Tuesday, January 26, 2010; A01
Under mounting pressure to rein in mammoth budget deficits, President Obama will propose in his State of the Union address a three-year freeze on federal funding that is not related to national security, a concession to public concern about government spending that could dramatically curtail Obama's legislative ambitions.
The freeze would take effect in October and limit the overall budget for agencies other than the military, veterans affairs, homeland security and certain international programs to $447 billion a year for the remainder of Obama's first term, senior administration officials said Monday, imposing sharp limits on his ability to begin initiatives in education, the environment and other areas of domestic policy.
Although the freeze would shave no more than $15 billion off next year's budget -- barely denting a deficit projected to exceed $1 trillion for the third year in a row -- White House officials said it could save significantly more during the next decade. They described the freeze as a critical component of a broader deficit-reduction campaign intended to restore confidence in Obama's ability to control the excesses of Washington and the most lavish aspirations of his own administration.
"You can't afford to do everything that you might have always wanted to do. That's the decision-making process that the president and the economic team went through," said a senior administration official, speaking on the condition of anonymity to describe the speech the president will deliver on Wednesday night. "We're not here to tell you that we've solved the deficit. But you have to take steps to control spending."
The announcement comes less than a week after Massachusetts voters sent shock waves through the Democratic establishment by handing Republicans a crucial 41st seat in the Senate, endangering Obama's agenda and fueling GOP attacks on Obama's stewardship of the budget and the economy. After spending much of his first year in office pursuing expensive initiatives such as a far-reaching overhaul of the health-care system, Obama has pledged to devote much of the next year to reducing record budget deficits, which have forced the Treasury Department to increase borrowing, driving the accumulated national debt toward levels not seen since World War II.
The spending freeze would affect only about one-eighth of the nation's $3.5 trillion budget, the bulk of which is devoted to entitlement programs such as Social Security, Medicare and Medicaid, which are responsible for much of the future increase in spending. It would not restrain funding for the $787 billion economic stimulus package Obama pushed through Congress early last year, nor would it apply to a new bill aimed at creating jobs, which Democrats have identified as their top priority in the run-up to November's congressional elections.
The House has approved a $156 billion package intended to lower the nation's 10 percent unemployment rate, while the Senate is drafting an $80 billion package that includes tax cuts for businesses that hire new employees as well as aid for cash-strapped state governments and the unemployed.
It is also unlikely to affect the approximately $900 billion health-care bill, which has been on life-support since the Massachusetts vote. In an interview with ABC News on Monday, Obama vowed to press ahead with health care and other first-year agenda items, even it means jeopardizing his reelection chances in 2012.
"I'd rather be a really good one-term president than a mediocre two-term president," he said in the interview, according to an excerpt posted on ABC's Web site.
Obama also defended his top economic advisers in the interview, saying Treasury Secretary Timothy F. Geithner and White House economic adviser Lawrence H. Summers have provided "sound, steady economic leadership" and are likely to stay with the administration despite rumors to the contrary.
Obama's commitment to cutting deficits will be an important theme of his address to Congress, administration officials said, and will be fully detailed in the budget he is due to submit to lawmakers early next week. Administration officials have declined to say specifically how the president plans to reduce deficits projected to add more than $9 trillion to the national debt during the next decade. But he has endorsed several measures aimed at meeting that goal, including the adoption of stringent pay-as-you-go budget rules that would bar lawmakers from passing programs that increase deficits and the creation of a bipartisan commission to work toward a balanced budget.
The Senate is scheduled to vote Tuesday on a plan to create a budget commission, though supporters say they lack the 60 votes needed for adoption. Obama has told lawmakers that if the measure fails, he will issue an executive order creating such a task force with broad power to change the tax code and spending on entitlement programs..
Late Monday, Republicans mocked the idea of a Democratic spending freeze. "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, spokesman for House Minority Leader John A. Boehner (R-Ohio).
Democrats, meanwhile, are likely to give the freeze a mixed response. Conservatives, including Sen. Evan Bayh (Ind.) and members of the House Blue Dog Coalition, have been calling for a freeze backed by the threat of a presidential veto. But liberals have resisted freezing spending, particularly on social programs, and are likely to call on Obama to extend any freeze to military programs, aides said.
As a candidate, Obama criticized a spending freeze proposed by his GOP opponent, Sen. John McCain of Arizona, comparing it to "using a hatchet to cut the fed budget. I want to use a scalpel."
Senate Budget Chairman Kent Conrad (D-N.D.), a strong proponent of balanced budgets who would have to sell the notion of a freeze to his colleagues, said Obama's proposal is "entirely possible to do." The results of a freeze would be "relatively modest in terms of overall deficit reduction," Conrad said. "But it sends an important signal that everything is on the table."
Discretionary spending -- which unlike entitlement spending is approved annually by Congress -- has risen rapidly over the past decade, by about 7.5 percent a year, according to the bipartisan Committee for a Responsible Federal Budget. The most recent spending bills, approved in December, authorized a 4.1 percent increase in total discretionary spending for the fiscal year that began in October and an 8.2 percent increase for federal agencies unrelated to defense.
It was not clear Monday which programs would be most affected by a freeze. Administration officials said Obama would not freeze spending across the board but would increase investments in some agencies while slashing others. For example, Democrats are eager to offer additional help to a struggling middle class.
Administration officials have said that goal would not conflict with deficit-reduction efforts. But the tension between them was on display Monday as Obama rolled out a list of relatively inexpensive initiatives to help middle-class families. Most of them were included in the budget he sent to Congress last year but were never funded, according to Democratic congressional aides.
They include nearly doubling the child- and dependent-care tax credit for families making less than $85,000 a year; limiting a student's federal loan payments to 10 percent of income above his basic living allowance; creating a system of automatic workplace retirement savings accounts; expanding tax credits to match retirement savings; and expanding elder-care help for the "sandwich generation" of baby boomers caring for parents as well as children.
"We're going to keep fighting to rebuild our economy so that hard work is once again rewarded, wages and incomes are once again rising, and the middle class is once again growing," Obama said in unveiling the list at the Eisenhower Executive Office Building. "Above all, we're going to keep fighting to renew the American dream and keep it alive -- not just in our time, but for all time."