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Obama Offers Deficit Savings to Head Off Automatic Cuts Obama Urges Congress to Act to Stave Off Cuts
(about 5 hours later)
WASHINGTON — President Obama on Tuesday called on lawmakers to quickly pass a new package of limited spending cuts and tax changes that can head off the automatic, across-the-board reductions set to begin March 1. WASHINGTON — President Obama on Tuesday called on Congress to quickly pass a new package of limited spending cuts and tax increases to head off substantial across-the-board reductions to domestic and military spending set to begin on March 1, but his appeal for more revenue was dismissed by Republicans.
Mr. Obama said Congress should delay the automatic cuts for a period of months to give lawmakers a chance to negotiate a full deficit reduction package that permanently resolves the threat of the so-called sequester. Trying to gain the upper hand in the latest fiscal clash, Mr. Obama said Congress should delay the reductions for at least a few months to give lawmakers a chance to negotiate a full deficit reduction package that permanently resolves the threat of a so-called sequester.
“They should at least pass a smaller package of spending cuts and tax reforms” to put off the automatic cuts, Mr. Obama said Tuesday afternoon from the White House briefing room, adding that there is no reason to put at risk “the jobs of thousands of Americans.” “They should at least pass a smaller package of spending cuts and tax reforms that would delay the economically damaging effects of the sequester for a few more months,” Mr. Obama said Tuesday afternoon in the White House briefing room. He said there was no reason to put at risk “the jobs of thousands of Americans.”
The president said the economy had begun to recover, but he warned that continuing clashes over taxes and spending threatened to delay or derail that improvement. “We’ve also seen the effects that political dysfunction can have,” Mr. Obama said. “We’ve made progress. And I still believe we can finish the job with a balanced mix of spending cuts and more tax reform.” The president said the economy, which unexpectedly contracted at the end of last year, had begun to recover slowly. But he warned that continuing fights over taxes and spending threaten to delay or derail that improvement.
Mr. Obama did not spell out a specific package of cuts and tax adjustments. In the past, he has said cuts in spending must be balanced by effort to raise new tax revenue by closing loopholes for wealthy Americans and the oil and gas industries. “We’ve also seen the effects that political dysfunction can have,” Mr. Obama said. “We’ve made progress. And I still believe we can finish the job with a balanced mix of spending cuts and more tax reform.”
The president acknowledged that a broader budget agreement is unlikely to be reached by the March deadline, when the cuts to domestic and military programs will take effect. Senator Mitch McConnell of Kentucky, the Republican leader, mocked the president’s demands to close tax loopholes, calling them “gimmicky tax hikes” and said, “It’s time for Washington Democrats to get real.” House Republicans noted that they had already passed their own plans to avoid the sequester.
Mr. Obama’s remarks came at about the time the Congressional Budget Office released its annual economic report and its latest projection on the country’s budget deficit. With the deadline looming, each party is eager to blame the other for consequences that could include thousands of layoffs at military contractors, service reductions in programs for the needy and a new economic slump.
The budget office, in its first analysis since the year-end tax deal between the White House and Congress raised taxes on high incomes, showed that the deficit for the fiscal year that ends Sept. 30 would be $845 billion, lower than the last four post-crisis years in which deficits exceeded more than $1 trillion. Mr. Obama, who missed a deadline this week to submit his annual budget to Congress, acknowledged on Tuesday that a broader deficit agreement is unlikely to be reached by the March deadline. He provided no details about the tens of billion of dollars in spending cuts and tax adjustments that he wants Congress to pass quickly. More specifics could come when he delivers his State of the Union address next Tuesday.
That $845 billion difference between government receipts and spending would be equal to 5.3 percent of the nation’s total output, or gross domestic product — about half of what it was relative to the size of the weaker economy in fiscal year 2009, when Mr. Obama took office, but still higher than the roughly 3 percent level that many economists consider the maximum that is sustainable in a growing economy. “While it’s critical for us to cut wasteful spending, we can’t just cut our way to prosperity,” the president said, returning to fiscal issues after several weeks focused on gun control and immigration. “I still believe that we can finish the job with a balanced mix of spending cuts and more tax reform.”
While the annual deficit is projected to decline as the economy recovers, the budget office once again emphasized that the deficit will rise later in the decade and continue do to so as the population ages — forcing greater spending for Medicare, Medicaid and Social Security — and health care prices keep rising. Without action in the next three weeks, federal law will set off automatic cuts worth about $1.2 trillion over the next decade. Mr. Obama and Republicans in Congress designed the cuts in 2011 to be devastating as a way to prod passage of a more thoughtful deficit reduction approach, but no agreement has been reached.
New deficit projections will define the scope of the nation’s spending problem and will help to shape the contours of the fiscal fights between Mr. Obama and the Republicans in Congress in the coming years. Mr. Obama spoke as the nonpartisan Congressional Budget Office released its annual economic report with the latest 10-year projections for the annual federal budget deficits. It provided some fodder to critics on the left and some economists who say that Washington’s continued emphasis on immediate deficit reduction is constraining economic growth, though the budget office said lower deficits would help the economy starting in 2014.
The push by the president to avoid the sequester is an admission that efforts to reach a bigger deal with Republicans to cut spending and raise revenues is not likely to be reached in the coming months. House Republicans this week criticized Mr. Obama for failing to meet a deadline Monday to submit a budget to Congress. “The federal fiscal policy specified by current law will represent a drag on economic activity” this year and through 2017, the report said. It said that growth in 2013 “would be roughly 1 ½ percentage points faster than the agency now projects if not for the fiscal tightening.”
“This was supposed to be the day that the president submitted his budget to the Congress, but it’s not coming. It’s going to be late,” the House speaker, John A. Boehner, said in remarks on the House floor. “That’s too bad. Our economy could use some presidential leadership right now.” Conservative House Republicans, as a price for their vote to suspend the debt ceiling, last month demanded that their leaders allow the automatic cuts to go into force as scheduled unless alternatives could be found on time. So far, Republican leaders have held firm to that promise even with some Republicans expressing anxiety about the cuts to the Pentagon.
House Republicans blame Mr. Obama for first proposing the automatic cuts, though Congress passed them in the summer of 2011 as part of a deal to raise the nation’s debt ceiling. The cuts were slated to go into effect Jan. 1, but Congress delayed them during negotiations last December. House Republicans last year passed two bills that would reduce domestic spending enough to avoid the automatic military cuts, although those bills expired with the last Congress. Speaker John A. Boehner on Tuesday called their proposals “common-sense cuts and reforms” that the president and his Democratic allies in the Senate could immediately accept.
Eager to avoid the cuts to military spending, House Republicans have proposed different spending reductions, which Mr. Obama and Democrats say would be harmful to important domestic programs. Democrats say the cuts favored by House Republicans would unfairly target domestic programs, and Mr. Obama again insisted on Tuesday that any short-term action in the next several weeks must meet his demands for a balanced approach that also closes tax loopholes for wealthy citizens and industries.
“Republicans have twice voted to replace these arbitrary cuts with common-sense cuts and reforms that protect our national defense,” Mr. Boehner said in a statement Tuesday. “The president’s sequester should be replaced with spending cuts and reforms that will start us on the path to balancing the budget in 10 years.” Democrats in the Senate are divided on how to proceed in the coming fiscal negotiations with Republicans. Like Mr. Obama, Senate Democratic leaders want a three-month replacement bill, just long enough to move the showdown past other budget deadlines like March 27, when the current stopgap law financing the government expires, and April 15, when the Senate and House must produce budgets.
Administration officials have been saying for weeks that the looming cuts have already had an impact on the nation’s economy. White House officials say the sequester was intended to force a more “balanced” set of deficit reduction measures. Senator Barbara A. Mikulski of Maryland, chairwoman of the Senate Appropriations Committee, favors a yearlong agreement. Senator Carl Levin of Michigan, chairman of the Senate Armed Services Committee, has a broader, $200 billion plan to shut down offshore tax havens and other loopholes. And Senator Max Baucus of Montana, chairman of the Senate Finance Committee, wants to defer any action on closing tax loopholes for the broader fight over taxes and spending.
They say the cuts passed by the House do not meet that test. And they said the automatic cuts would have serious impacts on the services provided to some of the neediest citizens. “We are not going to have multiple bites at this apple,” Mr. Baucus said Tuesday.
“While we need to deal with our deficits over the long term, we shouldn’t have workers being laid off, kids kicked off Head Start, and food safety inspections cut while Congress completes the process,” a White House official said. The report from the Congressional Budget Office was its first fiscal analysis since the year-end deal between the White House and Congress that raised taxes on high incomes, and it projected that the deficit for this fiscal year that ends Sept. 30 would be $845 billion.
The White House has also been aggressively warning about the dangers of the automatic cuts to military readiness. Leon E. Panetta, the departing secretary of defense, said on Sunday’s talk shows that the country’s security would suffer if they went into effect. That would be the first deficit below $1 trillion in five years, since the financial crisis of 2008. It would be equal to 5.3 percent of the nation’s total output, or gross domestic product — about half of what the deficit was relative to the size of the weaker economy in fiscal year 2009 when Mr. Obama took office, but still higher than the roughly 3 percent level that many economists consider the maximum that is sustainable in a growing economy.
“It is irresponsible for it to happen,” Mr. Panetta said on “Meet the Press” on NBC. “I mean, why in God’s name would members of Congress elected by the American people take a step that would badly damage our national defense — but more importantly, undermine the support for our men and women in uniform? Why would you do that?” While the budget office forecast that annual deficits will decline significantly as the economy recovers, the budget office once again emphasized that the deficit will rise later in the decade, beginning in 2016, and continue do to so as the population ages and health care prices rise.
The deficits that the budget office projects over 10 years are much larger than it forecast last August, mainly because the earlier forecasts reflected that all Bush-era tax cuts were due to expire at the end of 2012 and that the alternative minimum tax, which is intended for wealthy taxpayers with many deductions, would also apply to millions of middle-class Americans without any change in the formula in law.

Jonathan Weisman contributed reporting.

But in the bipartisan tax deal last December, Mr. Obama and Congress agreed to extend the Bush tax cuts for all but about 2 percent of Americans, those with the highest incomes, and to adjust the alternative minimum tax. This article has been revised to reflect the following correction:
Looking out on a 10-year horizon, with great spending anticipated for greater Medicare, Medicaid and Social Security as the population ages, the budget office said it expected deficits to rise by a total of about $4 trillion over the 10-year span, above what the budget office had projected last August.
Neither party wanted the Bush tax rates to end for most Americans, though Republicans wanted all the tax cuts to become permanent. Compared to a plan that would have extended all of the tax cuts, the tax deal last December raised revenues and thus reduced the 10-year deficits total by more than $700 billion.

This article has been revised to reflect the following correction:

Correction: February 5, 2013Correction: February 5, 2013

An earlier version of this article incorrectly described the tax agreement in  December between President Obama and Congress. It  adjusted  the alternative minimum tax. It did not repeal it.

An earlier version of this article incorrectly described the tax agreement in  December between President Obama and Congress. It  adjusted  the alternative minimum tax. It did not repeal it.