President Barack Obama will ask the U.S. Congress to freeze spending on some domestic programs for three years beginning in 2011, administration officials say.

Economic issues are expected to dominate President Barack Obama's state of the union speech Wednesday.Economic issues are expected to dominate President Barack Obama's state of the union speech Wednesday. (Anja Niedringhaus/Associated Press)

The spending freeze, to be proposed in Obama's state of the union address Wednesday night, would apply to so-called discretionary spending in the U.S. budget, a relatively small portion of overall federal spending made available for domestic agencies whose budgets are approved by Congress each year.

Discretionary spending made up $477 billion US of Washington's $3.5-trillion total budget last year.

Some agencies could actually get increases, while others would face cuts. Overall, the affected programs saw an almost 10 per cent increase this year. In 2010 alone, the U.S. budget deficit is forecast to hit $1.3 trillion.

Senior administration officials say the three-year discretionary restraint plan will be part of the budget Obama will submit Feb. 1. The officials commented on condition of anonymity.

Among the economic proposals Barack Obama is set to unveil in the upcoming budget:

  • Capping federal college loan repayments at 10 per cent of borrowers' discretionary income to make payments more affordable.
  • Increasing by $1.6 billion the money pumped into a federal fund to help working parents pay for child care, covering an estimated 235,000 additional children.
  • Nearly doubling the tax credit that families with annual incomes under $85,000 US can receive for child-care costs, with some help for families earning up to $115,000 US, too.
  • Requiring employers that don't provide 401(k) retirement plans to offer direct-deposit individual retirement accounts for their employees, with exemptions for the smallest firms.
  • Spending more than $100 million US to help people care for elderly parents and get support for themselves as well.

The Pentagon, veterans programs, foreign aid and the Homeland Security Department would be exempt from the freeze, as they do not fall under the umbrella of discretionary spending.

Small change

The savings would be small at first, perhaps $10 billion to $15 billion, one official said. But over the coming decade, savings could add up to $250 billion.

The White House is under pressure to cut deficits, or at least keep them from growing. Encouraged by last week's Massachusetts Senate victory, Republicans are hitting hard on the issue, and polls show voters increasingly concerned.

Critics on the left are attacking the president for trying to hold down spending while the economy is still reeling, but critics on the right say the belt-tightening doesn't go far enough.

The Senate loss appears to have spurred Obama to adopt a populist tone of job creation, lower taxes, and hammering at lavish compensation packages on Wall Street.

He has pushed the financial industry to show more restraint in its pay practices, and earlier this month pitched a plan that would limit the size of Wall Street banks and restrict the risks they are allowed to take.

Economic issues are expected to dominate the state of the union address.

With files from The Associated Press