Obama Calls for Tax Increase, Five-Year Spending Freeze in State of Union Address

January 26, 2011 - 8:20 AM

Obama SOTU

President Barack Obama shakes hands House pages after the State of the Union address on Capitol Hill on Tuesday, Jan. 25, 2011. (AP Photo/Charles Dharapak)

Washington (CNSNews.com) – President Barack Obama’s proposed five-year freeze on the federal budget is not enough to put the nation’s fiscal house in order, Republican lawmakers said, particularly in light of his call for new government spending and eventual tax increases.

“The analogy I would use is closing the barn door after the horse is already out,” Sen. John Thune (R-S.D.) told CNSNews.com.

“The run-up in spending that we’ve seen the last two years would be enshrined, and even though he talks about freezing spending for the next five years, we’ve increased spending in the last two years, 21 percent at a time, when inflation of the overall economy is 2 percent,” Thune said. “We’ve grown government at 10 times the rate of inflation. It’s going to take a much more aggressive effort to get this situation under control.”

Sen. James Inhofe (R-Okla.) called it fiscally irresponsible to "increase spending as the President has done over the past two years and then freeze it.  Instead, we should pull spending levels back to where they were before the massive increases and then freeze it."

The president acknowledged the freeze would only affect 12 percent of the federal budget, not touching entitlements such as Social Security, Medicare and Medicaid. Obama proposed a three-year spending freeze in his 2010 State of the Union address. However, that freeze never materialized.

During Tuesday’s State of the Union speech, Obama proposed “that starting this year, we freeze annual domestic spending for the next five years. Now, this would reduce the deficit by more than $400 billion over the next decade, and will bring discretionary spending to the lowest share of our economy since Dwight Eisenhower was president.”

After a bipartisan agreement during the lame-duck session of Congress extended the Bush-era tax rates for another two years, Obama on Tuesday called for raising taxes. But he did not specify when he wanted to end the Bush-era rates.

“If we truly care about our deficit, we simply can’t afford a permanent extension of the tax cuts for the wealthiest two percent of Americans,” Obama said. “Before we take money away from our schools or scholarships away from our students, we should ask millionaires to give up their tax break. It’s not a matter of punishing their success.  It’s about promoting America’s success.”

Raising taxes is the wrong move, Sen. Rand Paul (R-Ky.) said.

“I would extend them permanently. The point is that the marketplace has made the decision and is basing their business decisions on lower taxes,” Paul told CNSNews.com. “Anything you do to raise taxes will give a bad signal to the marketplace that’s already brought these (current tax rates) to their business calculations. In Kentucky, we have 10 percent unemployment. We are still in the midst of a great recession. The other side needs to fully and truly understand that they need to embrace the marketplace and not government. They still see government as the solution to everything.”

Earlier Tuesday, the Republican-controlled House voted to scale back federal spending to Fiscal 2008 levels, before emergency measures such as the $700-billion financial bailout and the $787-billion stimulus were enacted.

“I recognize that some in this chamber have already proposed deeper cuts, and I’m willing to eliminate whatever we can honestly afford to do without,” Obama said. “But let’s make sure that we’re not doing it on the backs of our most vulnerable citizens. And let’s make sure that what we’re cutting is really excess weight. Cutting the deficit by gutting our investments in innovation and education is like lightening an overloaded airplane by removing its engine. It may make you feel like you’re flying high at first, but it won’t take long before you feel the impact.”

Obama mentioned his own fiscal commission, co-chaired by Republican Alan Simpson and Democrat Erskine Bowles, that called for tax hikes and spending cuts to reduce the deficit and federal debt. But he did not endorse the report, nor did he specify what aspects of the commission’s plan he supports and opposes.

“The bipartisan fiscal commission I created last year made this crystal clear. I don’t agree with all their proposals, but they made important progress,” Obama said. “And their conclusion is that the only way to tackle our deficit is to cut excessive spending wherever we find it -- in domestic spending, defense spending, health care spending, and spending through tax breaks and loopholes.”