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President Obama’s Binge Diet

Thursday, January 28, 2010

The proposed budget freeze is akin to skipping dessert after binging at an all-you-can-eat buffet, and still hoping to lose weight.

The president announced in his State of the Union address last night that he will put the federal government on a diet. The centerpiece of this diet, he explained, rests on a three-year freeze of non-defense, non-homeland security discretionary spending starting in fiscal 2011. This, the White House touts, will save taxpayers $250 billion over ten years.

That’s right. President Obama is talking about freezing—not cutting—16 percent of the total fiscal 2011 budget. This is a small part of the budget, especially considering that this portion grew by 16.3 percent between fiscal 2009 and fiscal 2010 (and, once we include all fiscal 2010 spending, this increase will reach 24 percent). And this is on top of the 5.5 percent increase a year during each of the Bush years.

In other words, this budget freeze is akin to skipping dessert after binging at an all-you-can-eat buffet, and still hoping to lose weight.

Using data from the Office of Management and Budget, the chart below shows which part of the budget the president is targeting.

deRugy 1.27.10

In addition, the across-the-board freeze is so full of caveats and loopholes that it can only be seen as a joke. Here, our dieter isn’t allowed to eat desserts, unless it’s one with chocolate and whipped cream.

In the best-case scenario, the three-year freeze over the course of ten years will save on the order of $250 billion. That amounts to only 0.58 percent of the total federal spending during that period.

For instance, the freeze won’t apply to the $513 billion in unspent stimulus funds. Nor will it apply to the $247 billion of Troubled Asset Relief Program funds or to any of the programs that cash from repaid TARP funds will pay for, such as the $30 billion to prop up community bank lending to small businesses proposed by the president during his speech.

Besides, the president might ask for a freeze, but if history is any guide, Congress won’t give it to him. The president asserted his commitment to his diet by saying that he would veto any spending bill that doesn’t meet his requirement. It will be interesting to see if he can keep this promise, especially considering how unpopular this proposal was among liberals.

In the best-case scenario, the three-year freeze over the course of ten years will save on the order of $250 billion. That amounts to only 0.58 percent of the total federal spending during that period. This seems a rather meek savings especially in light of the CBO data showing ten-year baseline deficits of $6 trillion under current laws.

The across-the-board freeze is so full of caveats and loopholes that it can only be seen as a joke.

Last but not least, President Obama outlined a menu of small initiatives aimed at helping middle-class families (increasing child care tax credits) and small businesses (such as eliminating the capital gains tax). He also outlined larger infrastructure initiatives and green energy initiatives. All these measures would be part of a new job bill, which he told Congress he is expecting on his desk soon.

He also announced a series of spending measures to bolster education spending, boost community college education, make college affordable, and expand Pell Grants. He proposed to require that students never have to spend more than 10 percent of their income each year repaying their student loans and to give debt forgiveness to those going into “public service.”

Finally, he asked Congress to pursue healthcare overhaul.

In the end, these initiatives amount to many calories. The total cost of all of the measures will definitely be well over $250 billion over the next ten years. How is that a freeze? Where are the cuts coming from?

Veronique de Rugy is a senior research fellow at The Mercatus Center of George Mason University.

FURTHER READING: De Rugy regularly illustrates the follies of government spending for THE AMERICAN. She recently explained "So How Is the Stimulus Working Out? Part II” and “The High Cost of No Price” for healthcare. “Why Reform Will Cost Taxpayers More, Much More” looks at some of our recent cost overruns in government-driven medical spending. And AEI’s John Makin reviewed the U.S. economy and government policy in “Post Crisis Risks.”

Image by Darren Wamboldt/Bergman Group.

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