Obama to seek spending freeze, more aid to middle class

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Moving to address rising voter anger over federal deficits and the tattered shape of their own pocketbooks, President Obama will propose a freeze on non-defense-related federal spending as well as expanded aid to middle-class families in his State of the Union speech Wednesday night, White House aides said Monday.

To counter the soaring federal deficit, which polls show is a major factor in voters’ discontent, Obama will announce that the budget blueprint he files next week will contain a “hard freeze” on discretionary spending that lasts through 2013, an effort his advisors liken to the fiscal discipline average families impose on themselves every day.

Obama and Vice President Joe Biden unveiled the outlines of their relief package for the middle class at a White House meeting Monday.

Under the proposals, the child-care tax credit would be nearly doubled for families earning less than $85,000, federal student loan repayments would be capped at a lower level, employers would be required to offer automatic payroll deductions for retirement accounts, and financing would be increased for families caring for elderly relatives.

“None of these steps alone will solve all the challenges facing the middle class,” Obama said. “But hopefully some of these steps will reestablish some of the security that’s slipped away in recent years. Because in the end, that’s how Joe and I measure progress -- not by how the markets are doing, but by how the American people are doing. It’s about whether they see some progress in their own lives.”

The State of the Union, delivered to a joint session of Congress, will also address the stubbornly high unemployment rate, aides said, as well as key foreign policy goals and new proposals to improve transparency in government. The White House said the speech was still being written and it did not make details on those initiatives available Monday.

With his job approval ratings in decline and his political fortunes worsening in recent days, Obama is fighting to keep his Democratic majorities in Congress through the fall elections. That means persuading disillusioned voters to reinvest in him and his party for another two years.

“That sense of angst is what drove him to seek office,” said White House Communications Director Dan Pfeiffer. “It is something we have focused on in his year in the White House . . . and a big part of what we will do in 2010 and the rest of the presidency.”

House Republican Leader John A. Boehner of Ohio lit into the president’s economic plans.

“After spending most of the last year focused on their costly government takeover of healthcare, the White House and congressional Democrats again claim they are pivoting to the issue of jobs -- even as they remain committed to their job-killing agenda,” Boehner said in a statement. “Americans are asking, ‘Where are the jobs?’ ”

On Monday, Obama said the loss of 7 million jobs since the recession began is “an epidemic that demands our relentless and sustained response,” but he did not say what he might propose in the State of the Union speech, which will air Wednesday at 6 p.m. Pacific time.

White House officials said the tax-credit plans and other measures rolled out Monday are directly linked to job creation.

Under Obama’s 2011 budget proposal, any discretionary spending unrelated to national security would be frozen at its current level, two senior administration officials said Monday night. The freeze would affect roughly a sixth of the federal budget.

The president will propose to keep the freeze in place through 2013 so that, by the middle of the decade, that component of the budget will reach its lowest percentage of gross domestic product in 50 years. The savings from the three-year freeze is expected to amount to $250 billion over the next decade, compared with the baseline set in 2008.

“Some agencies will be up, some agencies will be down,” said one of the senior administration officials. “While there’s an overall freeze, it doesn’t mean that every agency and every agency’s budget will be frozen.”

The second official said the message should make perfect sense across the country.

“The president made these decisions like a family would do sitting around the dinner table,” the official said. “You can’t afford to do everything you might want to do.”

With those dinner-table decisions in mind, the president plans to offer relief to college students who graduate with substantial student loans.

He plans to limit a graduate’s federal loan payments to 10% of his or her income, above a basic living allowance. Currently the yearly payments are capped at 15% of discretionary income.

White House Press Secretary Robert Gibbs said, “If you’re trying to figure out how you’re going to go back to school so you can get that next job, we don’t want you to be crushed by the burden of skyrocketing tuition payments.”

Like many other features of the president’s plan unveiled Monday, the proposal is a result of the Middle Class Task Force that was created as one of Obama’s first official acts last January. In many cases, the programs unveiled this week are already in place, but Obama plans to expand them.

Another example is the child- and dependent-care tax credit, which would nearly double for families earning less than $85,000 a year. The president plans to increase the tax credit rate to 35% of child-care expenses from the current 20%.

Administration officials hastened to add that their expanding definition of the “middle class” doesn’t go far enough to include all those in need.

“I consider that to be a fairly narrow view of the middle class,” said Jared Bernstein, economic policy advisor to Biden, who heads the task force.

Other initiatives are meant to help a larger pool of American workers, including creating a system of automatic workplace IRAs. Obama will propose expanding tax credits to match retirement savings, as well as enacting new safeguards to protect retirement savings.

He also plans to expand support for families balancing work with elder care, although aides did not say exactly how he intends to do it.