Princeton economist Paul Krugman and Robert Reich, former labor secretary in the Clinton administration, ripped Obama’s plans for limiting government spending amid high unemployment and not doing enough for middle class America.
WSJ says Obama’s proposal is “a move meant to quell rising concern over the deficit but whose practical impact will be muted.” From the Journal:
To attack the $1.4 trillion deficit, the White House will propose limits on discretionary spending unrelated to the military, veterans, homeland security and international affairs, according to senior administration officials. Also untouched are big entitlement programs such as Social Security and Medicare.
The freeze would affect $447 billion in spending, or 17% of the total federal budget, and would likely be overtaken by growth in the untouched areas of discretionary spending. It’s designed to save $250 billion over the coming decade, compared with what would have been spent had this area been allowed to rise along with inflation.
The administration officials said the cap won’t be imposed across the board. Some areas would see cuts while others, including education and investments related to job creation, would realize increases.
Obama proposing a three-year spending freeze is “appalling on every level,” Krugman writes at Conscience of a Liberal. “It’s bad economics, depressing demand when the economy is still suffering from mass unemployment,” he says.
He also believes this is bad long-term fiscal policy that’s merely shifting attention away from reforming health care.
“Now, I still cling to a fantasy: maybe, just possibly, Obama is going to tie his spending freeze to something that would actually help the economy, like an employment tax credit,” Krugman adds. “There has, however, been no hint of anything like that in the reports so far. Right now, this looks like pure disaster.”
The administration also proposed new ideas for propping up struggling middle-class families. From WSJ:
On Monday, the president and Vice President Joe Biden announced a handful of modest proposals aimed at supporting middle-class families, the result, they said, of a task force led by Mr. Biden. They said the budget will include an additional $1.6 billion for low-income child-care subsidies, and that they would ask Congress to sweeten a child-care tax credit with more generous help for families earning up to $115,000.
Administration officials wouldn’t say how much the extra tax breaks would cost, or how they would pay for them. The plan also includes new limits for people repaying student loans, capping repayments at 10% of discretionary income, at a cost of $7.5 billion over 10 years, and $102.5 million for help with elder care.
Robert Reich describes the plans as “sensible and worthwhile,” but not nearly big enough. “They pale relative to the size and scale of the challenge America’s middle class is now facing,” he says.
Instead, Reich says Obama should enact a second stimulus that’s focused on bailing out state and local governments as well as helping distressed homeowners by letting them include mortgage debt in personal bankruptcy.
“Instead of moving in this direction, Obama is moving in the opposite one,” Reich says. Budget freeze “will make it impossible for him to do much of anything for the middle class that’s important.”