Tuesday, January 26, 2010

The Numbers: Obama's Tiny "Spending Freeze"

President Obama is expected to announce during his State of the Union address tomorrow night a three year freeze on Federal spending.  That sounds like a very simple and sensible idea, under the circumstances.  That is, until you quantify the numerical effect of the various exceptions to this simple rule.  The devil's in the details, as they say.

For starters, this proposed freeze would only apply to so-called "discretionary spending."  So all "non-discretionary spending" is exempted from this proposed freeze.  That includes Social Security, Medicare, Medicaid, unemployment benefits and interest payments on the national debt.  As you can see from the pie chart above, over 62% of the 2008 Federal Budget consisted of this so-called "non-discretionary spending." So the President would, in essence, be announcing a spending freeze on less than 38% of the Federal budget.  That's a less grandiose gesture, obviously, especially when one considers that several of these "non-discretionary spending" categories are the ones whose costs are rising fastest each year.

But it gets worse.  Also to be exempt from this spending freeze is anything related to "national security."  That includes, but is not limited to, defense spending. In this way, a further 25% of the Federal budget would be exempt from this spending freeze.  So in the end, the President will apparently announce tomorrow with some fanfare a spending freeze applicable to just over 12% of the Federal budget.  (Will he make that limitation clear in his address?)

A Washington Post article about the proposal, which you can read by clicking HERE, summarizes the limited  financial impact of this proposal well. "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... 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."

We can all watch tomorrow night as the President and the national press struggle to avoid any discussion of these politically difficult financial facts during the State of the Union address.  This will be the White Elephant in the room that's plunked itself down in the front row, center aisle.  (The one wearing the "AARP" t-shirt, with its arms crossed.) Watch as the assembled members of Congress, the Supreme Court justices and the President all struggle to avoid meeting its contemptuous gaze.

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