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What are the Effects of the Spending and Job Proposals outlined in the State of the Union Address?

The spending and “jobs” proposals outlined┬áby President Barack Obama in his State of the Union Address last week would not have the economic and budget-cutting effects the President intends.

A Freeze in Non-Security Discretionary Spending

Starting in 2011, we are prepared to freeze government spending for three years. Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected. –President Barack Obama, January 27, 2010

The President has the right idea with his proposal to freeze spending. Spending is out of control. But spending needs to be frozen and reduced. Unfortunately, after driving spending to a record $3.7 trillion last year nearly 26% of GDP with the accompanying $1.4 trillion deficit, Obamas proposal to freeze certain spending is underwhelming.

  • First, this freeze would only apply to a sliver of total federal spending about one-eighth of the budget. This freeze would reduce the deficit by 1.1 percent or less than half a percent off of last years spending.
  • Second, the proposal does nothing to curtail the impending costs of Social Security, Medicare, and Medicaid. It is impossible to be serious about bringing the budget under control or restoring confidence in his ability to control the excesses of Washington without taking action to limit spending on these programs.

A Jobs Package

jobs must be our number one focus in 2010, and that is why I am calling for a new jobs bill tonight. –President Barack Obama, January 27, 2010

President Obamas stimulus bill has resulted in massive government spending and done nothing to decrease rising double-digit unemployment. Yet he has announced another stimulus plan, which he presented as a “jobs plan” for better rhetorical effect. It promises to be at least as ineffective as previous attempts to stimulate the economy because it relies heavily on government infrastructure spending even though this has been one of the least effective components of the previous stimulus plan.

Instead of such a spending plan, The Heritage Foundation suggests a no-cost stimulus plan that actually decreases government. Such a plan involves:

  • Cutting taxes. A better way to stimulate the economy is to make the tax cuts permanent, and to lower corporate tax rates. Tax cuts provide incentives to work, save, and invest, thus allowing businesses to create jobs and increasing economic growth.
  • Stopping the subsidies for green jobs. Budget-busting subsidies and ham-fisted regulations will not help end the recession. Instead, they will shrink economic activity and prolong the recovery.
  • Opening up more areas for domestic energy production. An increase of two million barrels of domestic oil production would result in 270,000 new jobs.
  • Cutting government spending, which is increasingly crowding out private investment. Economic growth comes by individuals and entrepreneurs operating in free markets, not by Washington spending and regulations. Massive spending hikes in the 1930s, 1960s, and 1970s all failed to increase economic growth rates.

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