Video: Breaking down the spending freeze

  1. Closed captioning of: Breaking down the spending freeze

    >> there tomorrow night.

    >>> the white house has obviously been thinking about voters, angry and frustrated with washington. it was clear when they first leaked last night and today unveiled a proposal to freeze some federal spending to help tackle what's expected to be another massive budget deficit . almost $1.4 trillion again this year. this freeze will not include keech defense, homeland security , social security or foreign aid programs. that leaves just 17% of a $3.5 trillion budget subject to this spending freeze, which is aimed at saving about $25 billion a year. white house correspondent savannah guthrie has more on all this. savannah, late today they added white house salaries to the freeze, apparently. i heard liberals in washington picking all this apart today. conservatives picking it apart. i heard somebody say it's not aimed at them, it's aimed out in the country.

    >> reporter: no question about it. in poll after poll, independent voters put this near the top of their list of the priorities. federal spending deficit control, they are worried about it. right in time for the state of the union . the president unveiled this three-year discretionary spending freeze. you put your finger on it. notice what's not on there, defense spending and entitlement spending is the real driver of our deficits. social security , medicare and medicaid. nevertheless, they say this freeze will add up to $250 billion over ten years, but this kind of landed on a thud on capitol hill today. the president getting it on both sides left and right. on the left, liberals say this is no time to be curtailing government spending . we need to spend to intervene to help the unemployment problem. to that the administration says this will go into effect in october. jobs program still on track. on the right they say this is just the tip of the iceberg . 1/8 of the total federal budget . aides say it's a start, but not the end of our efforts here.

    >> at some point the advance marketing will come to an end. thanks. we will have

updated 1/26/2010 4:54:09 PM ET 2010-01-26T21:54:09

The Senate on Tuesday rejected a plan backed by President Barack Obama to create a bipartisan task force to tackle the federal deficit this year, despite glaring new figures showing the enormity of the red-ink threat.

The special deficit panel would have attempted to produce a plan combining tax cuts and spending curbs to be voted on after the November elections. The measure went down because anti-tax Republicans joined in opposition with Democrats wary of being railroaded into cutting Social Security and Medicare.

The vote to kill the deficit task force came hours after the nonpartisan Congressional Budget Office predicted a $1.35 trillion deficit for this year as the economy continues to slowly recover from the recession.

"Yet another indication that Congress is more concerned with the next election than the next generation," said Sen. Judd Gregg, R-N.H., a sponsor of the plan.

The budget deficits facing Obama and Congress are large and intractable, and the CBO's new deficit prediction is roughly equal to last year's record $1.4 trillion ocean of red ink. That means the government is borrowing to cover 40 percent of the cost of its programs.

Economists say sustained high deficits would force interest rates higher and "crowd out" private investment — and could have severe implications for the value of the dollar.

The report predicts a sluggish economic recovery and continued high unemployment — which presages big political problems for Obama and his Democratic allies heading into the midterm elections.

The report sees unemployment averaging 10.1 percent this year as the economy grows by slightly more than 2 percent. It would grow only a little more next year with an unemployment rate of 9.5 percent.

"CBO expects that the pace of economic recovery will be slow," said agency chief Douglas Elmendorf.

Video: Obama to push spending freeze
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The latest estimates also project that the deficit will drop to $980 billion next year and $480 billion in five years — but only if a host of tax cuts enacted under President George W. Bush are allowed to expire. Most budget experts see deficits nearing or exceeding $1 trillion each year over the next decade once tax cuts and other policies are factored in.

It's a sobering reminder of the fundamental imbalance of the federal government's budget that comes just days before Obama's Feb. 1 budget submission. The White House says Obama will propose a three-year freeze on domestic agency spending. It hasn't said whether Obama will propose tax hikes or benefit cuts to spiraling programs such as Medicare, Medicaid and Social Security.

The 2010 deficit figure is in line with previous estimates, but plans afoot on Capitol Hill for a new jobs bill and a coming Obama request for war funds would add to the total.

The spending freeze, expected to be proposed by Obama in his State of the Union address on Wednesday, would apply to a relatively small portion of the federal budget, affecting a $477 billion pot of money available for domestic agencies whose budgets are approved by Congress each year. Some of those agencies could get increases, while others would have to face cuts; such programs got an increase of almost 10 percent this year in the $3.5 trillion federal budget.

Also Tuesday, Sens. Claire McCaskill, D-Mo., and Jeff Sessions, R-Ala., said support was building for a plan to impose binding "caps" on spending similar to Obama's. It would take 67 votes to bust through the spending limits.

The freeze on so-called discretionary programs would have only a modest impact on the deficit. The steps needed to tackle such huge deficits include tax increases and curbs on benefit programs like Medicare, Medicaid and Social Security.

That was the idea behind the Obama-backed plan to create a special task force to find a way to curb the spiraling budget deficit. Obama may decide to create a weaker version of the task force by presidential order. But unlike the plan rejected Tuesday, there would be no way to force a Senate vote on the task force's plan.

Supporters garnered 53 votes for the plan, which was co-sponsored by Gregg and Budget Committee Chairman Kent Conrad, D-N.D. But 60 votes were required under procedural rules. Thirty-six Democrats and independent Joe Lieberman of Connecticut voted for the plan, as did 16 Republicans.

The task force was rejected after the powerful seniors lobby, led by AARP, objected to a potential fast-track debate of cuts to Social Security and Medicare. Anti-tax activists and GOP-friendly editorial pages pressed Republicans to oppose it.

The plan was offered as an amendment to a deeply unpopular bill to permit the government to borrow an additional $1.9 trillion to finance its operations and prevent a first-ever default on U.S. obligations.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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