Obama pushes short-term spending deal to delay looming automatic budget cuts

WASHINGTON – President Barack Obama is pushing for another short-term solution to the budget battles that have vexed Washington for months and still threaten the struggling U.S. economy, asking Congress Tuesday for temporary spending cuts and increased tax revenue to delay automatic across-the-board cuts slated for March 1.

With some conservative Republicans in Congress gearing up for letting the sharp automatic cuts take effect — which some economists say would create another recession — Obama called for spending cuts that would stave off the impending austerity measures.

The automatic cuts, which would hit everything from defence spending to popular benefit programs, were supposed to take effect Jan. 1. But Obama and congressional Republicans struck a dramatic New Year’s Day deal that extended Bush-era tax cuts for all but the wealthiest Americans and put in place about $24 billion in deficit reduction. That delay effectively postponed the automatic reductions to March 1.

The automatic austerity measures are punishment for Washington’s failure to strike a long-term budget pact.

Obama will ask for targeted ways to reduce the deficit, now running at more than $1 trillion a year, in the short term, perhaps several months. White House officials said that Congress needs more time to work out a 10-year plan worth more than $1 trillion in deficit reduction. Obama is not placing a time span or a dollar amount on the short-term plan. Officials said he will leave that to Congress. The accumulated U.S. debt has grown to more than $16 trillion.

Without mentioning specifics, Obama said he stood by his offer to the most powerful Republican in Congress, House of Representatives Speaker John Boehner, for a so-called grand bargain. Obama has said he is willing to see some cuts in the social safety net that protects older Americans.

“This doesn’t have to happen,” Obama said of the dramatic across-the-board cuts looming next month. He spoke in brief remarks at the White House, adding that there should be no reason for the “self-inflicted wounds,” job losses and hits to already weak economic growth “just because folks in Washington” couldn’t come up with a plan to reform government spending and close loopholes in the federal income tax laws. He did not take questions.

He also emphasized the need for more revenues arguing: “We can’t cut our way to prosperity.”

Boehner said in a statement that he opposed increased revenue, saying: “…Americans do not support sacrificing real spending cuts for more tax hikes.”

If the automatic cuts are allowed to kick in on March 1, they would reduce Pentagon spending by 7 per cent and domestic programs by 5 per cent. Food vouchers and Medicaid, which help provide food assistance and medical care for the poor, would be exempt. The Medicare health insurance program available to Americans at age 65 could see a 2 per cent cut. While taking a huge bite out of the economy, the cuts would inevitably lead to job losses at a time when unemployment is still at 7.9 per cent nearly 4 1/2 years after the financial crisis that sent the United States into its deepest downturn since the Great Depression of the 1930s.

Finding deficit reductions of up to $85 billion would put off the automatic cuts, known as a “sequester” in government budget language, until the start of the new fiscal year. White House officials say the delay will give Congress and the administration time to negotiate a long-term deal through the regular legislative budget process.

The automatic cuts are part of a 10-year, $1 trillion deficit reduction plan that was put together in 2011 that was supposed to spur Congress and the administration to tackle the federal debt by lowering it a total of $4 trillion over 10 years. Though Congress and the White House have agreed on about $2.6 trillion in cuts and higher taxes since the beginning of 2011, they have been unable to close the gap between that figure and the long-term, decade-long goal.

The Congressional Budget Office analysis said the government will run a $845 billion deficit this year, a modest improvement compared to last year’s $1.1 trillion shortfall but still enough red ink to require the government to borrow 24 cents of every dollar it spends.

The agency projected that the economy will grow just 1.4 per cent this year if $85 billion in across-the-board spending cuts take effect as scheduled March 1.

Economists say that too-high deficits and debt are a drag on the economy and could eventually precipitate a fiscal crisis like many European countries are experiencing.

“The CBO’s report is yet another warning that we need to get spending under control,” said House Budget Committee Chairman Paul Ryan, the 2012 Republican vice-presidential candidate. “The deficit is still unsustainable,”