President Obama is expected to announce a five-year non-security, discretionary spending freeze in tonight’s State of The Union, effectively extending by two more years the three-year freeze on many discretionary programs that Obama had previously proposed. Just what does this “freeze” really mean?
It is actually something that will feel like a reduction, since the population, and the economy, of the United States will continue to grow. This is how the Congressional Research Service explained the issue in September:
If discretionary spending were held constant in real terms, as the CBO baseline presumes, then discretionary spending per capita would decrease as population grows and it would shrink as a share of GDP as the economy grows. On average the U.S. population grew 1% a year and per capita GDP grew 2.25% per year from 1962 to 2005.32 If those trends were to persist, then holding discretionary spending constant in real terms implies per capita discretionary spending would shrink by 1% a year and discretionary spending as a share of the economy would shrink by 3.25% per year.
To be clear, this is a shift. According to CRS, non-security discretionary spending has increased at an average rate of 5.94 percent between Fiscal Year 2005 and Fiscal Year 2010. And you know what Peter Orszag used to say about the “power of compound interest.” (For another over-the-top explanation, see here.)