Shifting gears, Obama eyes domestic spending freeze, cuts to 5 percent in deficit-cutting bid

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Obama wants domestic spending cuts in next budget

WASHINGTON — The Obama administration, mindful of public anxiety over the government’s mushrooming debt, is shifting emphasis from big-spending policies to deficit reduction. Domestic agencies have been told to brace for a spending freeze or cuts of up to 5 percent as part of a midterm election-year push to rein in record budget shortfalls.

Yet with the economy still in distress and unemployment pushing past 10 percent, prospects for making a dent in a trillion-dollar-plus annual deficit seem slight. And since the Pentagon and Department of Veterans Affairs would likely be shielded from such cuts, overtures toward trimming the deficit may hold more symbolic value than substance.

President Barack Obama is expected to make post-recession spending restraint a key theme of his State of the Union address in January and an important element of the budget he submits to Congress a few weeks later. He is under increasing pressure, including from moderate and conservative members of his own party, to show he is serious about tackling a deficit that has become both an economic and political liability.

Not since billionaire Ross Perot made budget-balancing the centerpiece of his 1992 third-party presidential bid has so much public concern been voiced over the gulf between what the government spends and what it takes in.

White House budget director Peter Orszag on Friday told The Associated Press it is imperative to start curbing the flow of red ink. But he called it a balancing act and said acting too fast could undercut what appears to be a fledgling economic recovery.

Orszag has said the spending blueprint, for the budget year that begins Oct. 1, 2010, would put the nation “back on a fiscally sustainable path” and suggested it would include a mix of spending cuts and new revenue-producing measures.

Democratic officials in the White House and on Capitol Hill say options for locking in budget savings include caps on the amount of money Congress gets to distribute each year for agency operating budgets. They spoke on condition of anonymity to frankly discuss internal deliberations.

The White House told agencies to submit spending plans that would, at the very least, freeze their budgets, and to prepare for cuts as high as 5 percent. That edict is but one round in internal administration deliberations on the budget. Cabinet heads are sure to seek exemptions, and Orszag warned that firm budget decisions haven’t been made.

The administration also is weighing committing to debt reduction any unspent funds from the $700 billion bank bailout program. However, such a move would be largely a bookkeeping shift and not likely to yield much in the way of deficit reduction.

The new emphasis at the White House on deficit-reduction follows last month’s report showing the economy surged at a 3.5 percent annual pace in the July-September quarter after contracting for four consecutive quarters. That suggested the recession is likely over — even though job losses are expected to continue for some time.

Congress will soon vote on legislation to raise the debt ceiling — the limit on how much the government can borrow — above the present $12.1 trillion. On Friday, the nation’s overall debt stood at $11.99 trillion. Some fiscally conservative lawmakers have said they would not vote for further increases in the debt ceiling until the administration took deficit-cutting steps.

The national debt is the accumulation of annual budget deficits. The deficit for the 2009 budget year, which ended on Sept. 30, set an all-time record in dollar terms at $1.42 trillion.

The flow of red ink has been increased by war spending for Iraq and Afghanistan, recession-fighting stimulus and bank bailout spending and by reduced tax revenues from high unemployment and reduced personal and business income.

Polls show rising public concern over deficits. Exit polls from elections earlier this month showed clear majorities of Virginia and New Jersey voters said they were worried about the direction of the nation’s economy. In both states, Republicans won gubernatorial seats that had been held by Democrats.

Republicans are seeking to capitalize on this month’s Democratic election setbacks and rising voter concerns over the burst in federal spending. House Minority Leader John Boehner, R-Ohio, said the Democrats’ “so-called ‘war on deficits’ comes about a year late and more than a trillion dollars short.”

“Spending in Washington has been out of control for years, and instead of changing it as they promised they would, Speaker Nancy Pelosi and President Obama have stepped on the accelerator,” Boehner said in a statement.

Pollster Andrew Kohut, director of the Pew Research Center, said increasingly “the percentage of people naming the deficit as a problem is pretty substantial.”

“It may be approaching the level of concern we had in the early 1990s when Ross Perot rode that horse for quite some time politically,” Kohut said.

Still, politicians have typically avoided politically painful deficit-cutting steps in election years.

Stanley Collender, a budget expert at Qorvis Communications and a former staff aide to House and Senate budget committees, said if the administration could actually accomplish cuts in discretionary spending on the order of 5 percent — a big “if” — it would be a notable step toward bringing down deficits.

Despite today’s hard times, putting such measures in play sooner rather than later makes sense since they wouldn’t take effect until next Oct. 1, when jobs hopefully will be coming back and the economy humming again, Collender said. “It’s sort of like an outfielder trying to catch a fly ball. You try to get to where the ball’s going to be rather than where it is at that particular moment.”

The deficit-cutting drive comes as Obama traveled to Asia where several nations, especially China, have expressed concerns about the size of U.S. deficits. China is the largest foreign holder of U.S. debt and policymakers worry that alarm over deficits could push foreigners into cutting back on their purchases of Treasury securities.