UPDATE: Stan Collender thinks we might be making ice mountains out of snow hills.
According to a number of news reports, President Obama has begun asking agencies to plan for a discretionary spending freeze next year -- or perhaps a 5 percent cut. The President may propose such as initiative as part of a deficit-cutting themed State of the Union address in January.
Although we often tend to focus on entitlement reform here at CRFB, discretionary cuts can and should play a significant role in closing the fiscal gap -- especially in the short-medium term (and certainly, cutting discretionary spending will do a lot more than just assuming lower TARP spending).
In fact, over the last decade, discretionary spending has grown at a very similar rate to mandatory spending.
Simply freezing all non-stimulus non-war discretionary spending at 2010 levels would mean that, in 2011 alone, we'd be spending $60 billion less than what is proposed in the President's Budget. If normal discretionary spending were to grow at the same rate as in the President's budget after 2011, we'd be spending $600 billion less through 2019 -- and probably another $150 billion less in interest payments.
Freezing domestic (non-defense) discretionary spending alone would have roughly half that effect -- which would still be quite significant. A 5% cut of all discretionary spending, on the other hand, would have nearly double the effect.
Of course, even freezing (let alone cutting) discretionary spending will be quite difficult. And sustaining the growth rates currently included in the President's budget will probably require tough budget rules and significant sustained political will.
And ultimately, no amount of discretionary cuts can close the fiscal gap by themselves -- since Medicare, Medicaid, Social Security, and net interest are quickly consuming a growing share of the budget.
That said, the potential savings from a discretionary spending freeze (or significant slowdown) coupled with strong discretionary caps would be quite large. And we strongly support any effort the President makes to bring spending in this area of the budget under control.