Obama Offers Deficit Savings to Head Off Automatic Cuts

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Correction Appended

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.

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.

"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."

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."

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.

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.

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.

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.

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 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.

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.

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.

"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."

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.

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.

"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."

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.

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.

"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 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.

"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?"

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.

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.

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.

Correction: February 5, 2013, Tuesday

This article has been revised to reflect the following correction: 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.

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This article originally appeared in The New York Times.


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