In his much anticipated State of the Union address last night, President Barack Obama proposed a five-year freeze on domestic or discretionary spending to start this year in order to address increasing deficits.
Spending wise, budgets are separated into two main categories: automatic stabilizers, which include prior legislative commitments to social security, unemployment, and other entitlements. While specific amounts to be funded might not be written in law, rules determining amounts to be paid or eligibility requirements for receiving payments may be included in legislation.
Discretionary spending, on the other hand, is not subject to any prior commitments. They represent explicit changes in government purchases and/or tax policies with the intent of stabilizing business cycles, affecting inflation, or reducing unemployment.
Based on Mr. Obama’s address, non-security discretionary spending should remain at approximately $530 billion over the next five years. This freeze, however, would not necessarily result in reduction in the deficit or reduce the freeze’s impact on national economic growth or output.
The FY 2011 budget, which covers the period October 1, 2010 to September 30, 2011, has already projected a reduction in discretionary spending. For example, while discretionary spending is expected to be approximately $530 billion in FY 2011, discretionary spending is expected to fall to $490 billion in FY 2012; $480 billion in FY 2013; $484 billion in FY 2014; $493 billion in FY 2015; and $504 billion in FY 2016.
Discretionary spending is not expected to impact national output much either. In FY 2011, discretionary spending is expected to account for 5.8% of national output, but fall to 4.3% in FY 2016.
If overall employment and African American employment in particular is to rise, there will have to be a significant increase in national output. This increase will not come from discretionary spending much less a spending freeze in this portion of the budget. If African Americans expect to see a boost in GDP, and thus employment, other factors of economic growth, such as consumer spending, which accounts for 70% of GDP, and private investment, which accounts 14% of GDP will have to be relied on.