14 Feb 2011

US cuts: Obama’s $1.1trillion budget battle

It’s not just in Britain that the Government’s cutting spending. President Obama is planning a $1.1trillion cut – and his political opponents say that’s not enough, as Felicity Spector reports.

Facing a budget battle - Barack Obama (Getty)

It’s a battle of public spending cuts. In the blue corner: Barack Obama – who’ll call for some pretty hefty spending cuts for 2012 in his budget speech tonight, promising to cut the federal deficit by more than a trillion dollars over the next ten years.

“It’s time”, he declared “that Washington live within its means, while at the same time investing in its future”.

And in the red corner: the Republicans – forced into proposing deeper cuts than their leadership intended, the threat of a government shutdown looming if the two sides don’t find a deal. Technically, the Government runs out of money in three weeks’ time – there’s a real deadline at stake.

Alongside Obama’s proposed cuts there are some tax hikes – plus some real spending increases. But the bulk of the savings – some two thirds – will come from a five year freeze and some fairly tough spending cuts, shaving $78bn off defence but hitting social programmes too, which is unlikely to endear him to his liberal supporters.

Among the projects facing the axe: a heating assistance scheme for those on low incomes, block grants for community development and $62 bn in Medicare payments, although that money will be re-invested in doctors who care for elderly patients. Obama’s proposal would lock in the spending increases he’s made over the last two years, while the spending freeze would save some $400m over a decade.


The Republicans aren’t impressed with this kind of deal: their Budget point man Paul Ryan claimed yesterday that the savings on offer were merely “paltry” – accusing the administration of “blowing spending out the gates in the last two years”.

In a letter to the President this weekend, the Republican Speaker of the House of Representatives, John Boehner – backed up by some 150 economists – warned: “We must reverse this spending binge as quickly as possible”.

Spurred on by the new conservative intake, the Republicans are pushing for some pretty aggressive cuts – including programmes the White House says are essential to boost the economy, like job creation, education and a high-speed rail link. They won’t – yet anyway – talk about tackling the big entitlement programmes: social security and Medicaid.

But according to Paul Ryan – who chairs the House Budget Committee – this is only the beginning.

In fact the extent of the GOP proposals – more than $20bn above the figure the party establishment had first put forward – marks a significant victory for the Tea Party bloc in Congress, who’ve been declaring that far more radical cuts in spending are part of a neccessary “culture change”.

Remember the Pledge to America they all signed up to back in the 2010 campaign? There are plenty of freshmen who believe the party should do what it said it would. And they’d put health and social security spending firmly in the firing line.

Room for compromise

There is, of course, always room for compromise. Top Republicans are desperate to play down any talk of a government shut down, while yesterday the White House Budget Director, Jack Lew, said there was “more on the table, more that’s open for the kind of civil discourse that we need to make the tough decisions”.

Administration officials have briefed reporters in similar vein: expressing hope that the two sides can come to a mutual conclusion. “We obviously don’t agree with everything that’s in the initial cuts that they’ve put forward. They’re not going to agree with everything we put forward…”

Indeed, some Democrats are expected to support the GOP plans – while there are a few more moderate Republicans who aren’t keen on cuts aimed at low-income families.

So the White House will be pushing its agenda of cuts, for sure – but only when coupled with that infrastructure spending they say is so crucial to growth.

To ram home the message, President Obama will be in Baltimore today, to outline his budget plans – and he’ll be making his speech surrounded by children in a science classroom, saying how crucial it is to help America’s young people become competitive in the global economy.

Fiscal restraint plus economic investment – that’s the White House mantra right now. And the Democrats are hoping it’ll sound a whole lot more attractive to voters, than the Republicans’ “cut deep – and cut now”.